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PARTNERSHIPS

A Partnership is a legal relationship formed by the agreement between two or more individuals to carry on a business as co-owners. 

 

Patnerships use "Deed of Partnership" to clarify the relationship between the partners, roles and responsibilities of the partners, their salaries, their interest on capital and drawings and their respective shares in the profits or losses of the partnership.

 

A record of partner's drawings and share of profits is recorded in thier Current Accounts

Partner's Loan 

 

Partner's loan is NOT CAPITAL because they want money back so it is recorded as a BUSINESS LIABILITY. 

INTEREST ON LOAN should be credited to the partner's current account because it increases the amounth that the business owes the partner.

 

                                                                                     DEBIT                                   CREDIT

When a partner makes a loan                                   BANK                                      LOAN

When a partner's loan is repaid                                LOAN                                      BANK

When interest is given ona partner's loan               INCOME STATEMENT         PARTNER'S CURRENT

                                                                                      (EXPENSE)                          ACCOUNT

Example

1)

income statement

2)

Appropriation account

3)

Parner's current accounts

4)

Balance sheet

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