1. Partnership Accounting
Chapter 15
Partnership Accounting

2. Nature of a Partnership
Partnerships are a form of business organization owned by two or more persons, called partners, for the purpose of making a profit.
All partners, with the exception of sleeping partners, take part in decision making.

3. A Typical Partnership Deed
profit and loss sharing ratio
amount of capital to be contributed by each partner
rate of interest (if any) to be paid on capital
rate of interest (if any) to be charged on drawings
rate of interest (if any) on loans given by partners to the partnership
salary (if any) to be paid to partners and
procedure to be followed for the admission of new partners.

4. Partnership Act of 1890
In the absence of a partnership deed, we look to the Partnership Act of 1890 for direction.
The Act states, among other things, that:
profit and losses are to be shared equally;
partners are not charged or entitled to:
interest on drawings,
interest on capital, or
salary; and
partners are entitled to a 5% interest on loans made to the partnership.

5. Partnership Records The records of a partnership comprise of the:
Trading, Profit and Loss Account
Appropriation Account
Current Accounts
Capital Accounts
Balance Sheet.

6. Appropriation Account
Some common appropriations of net
profit include:
Interest on Capital
Partners’ Salaries
Interest on drawings
Share of Residual Profit.

7. Current Account
A credit balance in a Current Account indicates that the business owes the specific amount to the partner.
A debit balance in a Current Account indicates that the partner owes the business the specific amount.

8. Accounting Entries Accounting Entries Debit Credit
Interest on Drawings
Partners' Current a/c
Appropriation a/c
Partners' Drawings
Drawings a/c
Loan Interest Paid
Profit & Loss a/c
Bank a/c
Loan Interest Owing
Partners' Salaries Paid
Partners' Salaries Owing
Interest on Capital
Share of Residual Profit