1.  A partnership is am unincorporated from of business organization owned by two or more partners.  A partnership often is referred to as a firm.  A partnership are the least common form of business organization.  A partner may be either an individual or a corporation.

2.  The assets of a partnership do not belong to the business. They belong jointly to all of the partners.  The partners itself pays no income tax.  Under law, the partners as personally-and jointly- responsible for the activities of the business.  Each partner has unlimited personal liability for the debts of the business

3.  There are three types of partnership. 1.General partnership 2.Limited partnership. 3.Limited general partnership.

4. Mutual agency  General partner can withdraw cash and other assets from the business.  Each partner has right and responsibilities similar to those of a sole proprietor. Unlimited personal liability  Every partner also has unlimited personal liability for the debts of the firm.

5.  A limited partnership has one or more general partners and one or more limited partner.  The limited partners are basically passive investors.  They share in the profits and losses of the business.  They do not participate actively in management and personally liable for debts.

6.  In this type of partnership, each partner has unlimited personal liability for his or her own professional activities, but not for the actions of other partners.  All the partners can participate in a limited liability partnership.

7.  Salary allowances on partners, interest allowances on partners, capital balances, and remaining net income or loss is divided in a fixed ratio.

8. assume that the partners agree to a profit-sharing plan providing for salaries and for interest on beginning capital balances. Salary allowances, as before, are authorized at 12,000 for haris and 60,000 for waqas. Beginning capital are 160,000 for haris and 40,000 waqas. Partner are to be allowed interest at 10% on their beginning capital balances, and any profit or loss remaining after authorized salary and interest allowances is to be divide equally. assume that the partners agree to a profit-sharing plan providing for salaries and for interest on beginning capital balances. Salary allowances, as before, are authorized at 12,000 for haris and 60,000 for waqas. Beginning capital are 160,000 for haris and 40,000 waqas. Partner are to be allowed interest at 10% on their beginning capital balances, and any profit or loss remaining after authorized salary and interest allowances is to be divide equally.

9. HARIS WAQAS N.I HARIS WAQAS N.I Net income to be divided…………… 96,000 Salary allowances to partners……... 12,000 60,000 (72,000) Income after salary allowances……. 24,000 Interest allowances on beginning capital: HARIS(160,000*10%)………… 16,000 HARIS(160,000*10%)………… 16,000 WAQAS(40,000*10%)………... 4,000 WAQAS(40,000*10%)………... 4,000 Total allocated as interest allowances.. (20,000) Remaining Income after all allowances.. 4,000 Allocated in a fixed ratio: HARIS(50%)…………………… 2,000 HARIS(50%)…………………… 2,000 WAQAS(50%)………………… 2,000 (4,000) WAQAS(50%)………………… 2,000 (4,000) TOTAL SHARE …... 30,000 66,000 -0-

10.  If the partnership contract provides for salaries and interest on invested capital, these provisions are to be followed even though the net income for the year is LESS than the total of the authorized salaries and interest. Suppose The net income of the firm of HARIS and WAQAS amounted to only 50,000.

11. HARIS WAQAS N.I HARIS WAQAS N.I Net income to be divided…………… 50,000 Salary allowances to partners……... 12,000 60,000 (72,000) Residual loss salary allowances……. ( 22,000) Interest allowances on beginning capital: HARIS(160,000*10%)………… 16,000 HARIS(160,000*10%)………… 16,000 WAQAS(40,000*10%)………... 4,000 WAQAS(40,000*10%)………... 4,000 Total allocated as interest allowances.. (20,000) Residual loss after all allowances.. (42,000) Allocated in a fixed ratio: HARIS(50%)…………………… (21,000) HARIS(50%)…………………… (21,000) WAQAS(50%)………………… ( 21,000) 42,000 WAQAS(50%)………………… ( 21,000) 42,000 TOTAL SHARE …... 7,000 43,000 -0-

12. Income summary…………50,000 HARIS…………… 7,000 HARIS…………… 7,000 WAQAS………… 43000 WAQAS………… 43000  To close the income summary account be crediting each partner with authorized salary and interest at 10% on beginning capital, and dividing the residual loss equally.