Accounting for Partnership
Unit I. Nature of a partnership firm and the accounts partners keep.
About this unit
This unit introduces the partnership form of business and the special accounts a firm keeps for its partners. You learn what a partnership is under the Indian Partnership Act, 1932, why a written partnership deed matters, how partners' capital is recorded, and how the net profit of a year is shared after rewarding partners for their capital and effort. It is the foundation for the whole of Class 12 Accountancy, because admission, retirement and dissolution all build on these accounts.
Key ideas
- Partnership: a relation between persons who agree to share the profits of a business carried on by all or any of them acting for all.
- Partnership deed and the rules that apply when there is no deed.
- Fixed and fluctuating capital methods.
- Interest on capital, interest on drawings, salary and commission to partners.
- Profit and Loss Appropriation Account.
- Guarantee of profit and adjustment of past errors.
How to prepare
Memorise the provisions that apply in the absence of a deed, since many questions turn on them. Practise the format of the Profit and Loss Appropriation Account and partners' capital and current accounts until you can draw them quickly. Work through numericals on interest on drawings (average period method) and guarantee of profit, as these are favourite application questions.
Topics in this chapter
Nature of partnership and partnership deed
Meaning, features and importance of a partnership deed, and the rules that apply when there is no deed.
5 questionsFixed and fluctuating capital
Partners’ capital and current accounts under the fixed and fluctuating capital methods.
5 questionsDivision of profit among partners
Interest on capital and drawings, partner’s salary and commission.
5 questionsProfit and Loss Appropriation Account
Preparing the account that shows how profit is shared among partners.
5 questionsGuarantee of profit to a partner
Minimum profit guaranteed by the firm or by particular partners.
5 questionsPast adjustments
Correcting errors and omissions in the profit distribution of earlier years.
5 questions