Sie sind auf Seite 1von 3



Partnership is defined as a contract whereby two or more persons bind themselves to contribute
money, property or industry (skills, expertise or knowledge) into a common fund with the intention of
dividing profits among themselves. It encompasses 3 distinct factors:

1. Association of Two or More Persons. Persons are usually individuals or natural person who
possesses the right to enter into a contract of Partnership.
2. To Carry On as Co-Owners. All partners are co-owners of the Partnership property and are of the
profits or losses of the partnership since it is an aggregation of partners individual rights.
3. Business for Profit. Partnership must attempt to make profit.
** Non-profit organizations may not be partnerships.

1. Mutual Agency- Each partner has an equal right to act for the partnership and to enter into
contracts binding upon it, as long as it is within the normal scope of business operations.
** Each partner is a Principal as well as an Agent of the partnership. <PA>
2. Unlimited Liability- Personal Assets of any partner may be used for the settlement of
partnership liabilities if the partnership assets are not enough to settle the liabilities to
** Exception: Limited Partnership where partners are allowed to limit their personal liabilities
to the extent only of their contributed capital.
3. Limited Life- A partnership may be dissolved at any time by action of the partners or by
operation of law.
4. Mutual Participation in Profits- Partner has the right to share in the partnership profits.
5. Legal Entity- A partnership has legal personality separate and distinct from that of each of the
** It may acquire property in its own name and may enter into contracts.
6. Co-Ownership of Contributed Assets- Property contributed to the partnership are owned by the
partnership by virtue of its separate legal personality.
7. Income Tax- Partnerships, except general professional partnerships are subject to the 30%
income tax.

Underlying Equity Theories: How Entity can be viewed from the accounting and legal point of view
a. Proprietary Theory- looks at the entity through the eyes of the owner. The assets and liabilities
of the business as belonging to the proprietor and the profits generated are viewed as an
increase in the proprietors capital.
b. Entity Theory- views the business as a separate and distinct entity possessing its own existence
apart from the individual partners.

Accounting for Partnerships

Capital Account
a. Permanent withdrawal (decrease) of capital a. Original Investment
b. Debit balance of the drawing account at the
end of the period b. Partner's share in the profits
c. Share in partnership loss from operations c. Additional investment by a partner


Drawing Account
a. Withdrawal of assets by the partners in a. Partnership obligations assumed or paid by the
anticipation of net income (temporary partner
b. Personal indebtedness paid or assumed by the b. Personal funds or claims of partner collected and
partnership retained by the partnership
c. Funds or claims of partnership collected and c. Periodic partner's salaries depending on the
retained by the partner accounting and disbursement procedures agreed
d. Periodic withdrawals


A. Two or More Person Form a Partnership for the First Time (All Partners are NEW in the Business)
Initial Investments:
If the asset contributed is in the form of Cash, it is recorded on the partnership books at Face
Value; if it is in the form of Property or non-cash asset, it is recorded at Agreed Value or in the
absence of agreement at Fair Market Value at the time of investment to ensures that any gain
or loss on the subsequent sale of property will be equitably distributed in accordance with the
partnership agreement.
When Industry is contributed, a memorandum entry is prepared.
B. A Sole Proprietor and an Individual form a C. Two or More Sole Proprietors form a Partnership
Sole Proprietorship's Books are Retained for the The Partnership will use the Books of one of the Sole
Partnerships Proprietorships
Books of Books of Books of Books of Sole
Individual Sole Sole Proprietor
Proprietor Proprietor (Retained)
1. Adjusting Entries Not Yes 1. Adjusting Entries Yes Yes
2. Closing Entries Not No 2. Closing Entries Yes No
3. Record the Investment of the individual in the 3. Record the Investment of other sole proprietor in
books of the Sole Proprietor the retained books of the partnership

The Partnership will open a New Set of Books The Partnership will open a New Set of Books
Books of Books of New Set Books of Books of New Set of
Individual Sole of Books Sole Sole Books
Proprietor Proprietor Proprietor
1. Adjusting N/A Yes 1. Adjusting Yes Yes
Entries Entries
2. Closing N/A Yes 2. Closing Yes Yes
Entries Entries
3. Investment of Sole Yes 3. Investment of Sole Yes
Proprietor Proprietor
4. Investment of the Yes 4. Investment of the Yes
other partner other Sole Proprietor


** Note that the assets invested are recorded at their current fair values at the time of the formation.
** No accumulated depreciation is carried forward to the partnership.
** Adjustments are to be made to their capital accounts.
Necessary adjusting entries:
Dr Asset and Cr Capital for increases in asset values
Dr Capital and Cr Asset for decreases in asset values
Dr Capital and Cr Liabilities for increases in liability balances
Dr Liabilities and Cr Capital for decreases in liability balances
In case of Contra asset accounts, the following rules shall apply:
Dr Contra-Asset account and Cr Capital for increases in asset values
Dr Capital and Cr Contra-Asset account for decreases in asset values