Accountancy · Ch 1 — Accounting for Partnership: Basic Concepts
Terms Introduced in the Chapter
Terms Introduced in the Chapter
The key terms introduced in this chapter, with a short meanin …
Partnership is the relationship between two or more persons who agree to carry on a business together and to share its profits and losses, with the business run by all of them or by …
A partnership firm is the collective name under which the partners carry on their business; in accounting the firm's books are kept separate from the partners' personal affairs, recording their cap …
A partnership deed is the written agreement among the partners that sets out the terms of their partnership — such as the profit-sharing ratio, capital contributions, interest on capital and drawings, partners' salaries an …
Interest on capital is an allowance credited to a partner on the capital he has invested in the firm; it is given only when the partnership deed provides for it and, being an appropriation of pr …
Interest on drawings is an amount charged to a partner on the money he withdraws from the firm for personal use; it is calculated for the period the money remained withdrawn and is recovered from the pa …
The average period is the single average length of time for which a set of even, regularly spaced drawings is treated as outstanding — a short-cut used to work out interest on drawings for …
Under the fixed capital method, a partner's capital account records only the capital introduced or permanently withdrawn — its balance stays fixed year after year unless the partner's actual capital changes. Every other adjustment (drawings, interest, salary, share of profit) …
Under the fluctuating capital method, a single capital account per partner absorbs every adjustment — drawings, interest on capital, interest on drawings, salary, commission and share of profit or loss — so its balance …
The second account maintained for each partner under the fixed capital method, recording every adjustment other than the addition or permanent withdrawal of capital. It can show eit …
An extension of the Profit and Loss Account, prepared specifically for a partnership firm to show how the net profit or loss is appropriated — distributed — among the partners after interest on capital, salary, commission and inte …
A temporary account used to correct an item (such as omitted interest on capital) discovered after a year's profit has already been distributed — it records the omitted item and then reverses the wrong distribution, without reopen …