SECTION 8: Partnerships

• What is a partnership?

  A business ownership with two or more persons
• What are the features of a partnership?

  • Additional capital invested by each partner
  • Specialist skills and expertise combined
  • Shared workload among partners
• What is a limited partnership?

  A partnership with limited liability for some partners
• What happens to a limited partner's liability upon business failure?

  They lose only their capital contribution
• What is one condition for becoming a limited partner?

  Cannot participate in day-to-day operations
• What must be done for a business to be a limited partnership?

  The business must be formally registered
• What are the key components of profit sharing in a partnership?

  1. Profit sharing ratio
  2. Capital and interest on capital
  3. Salaries
  4. Drawings and interest on drawings
• Is it necessary to have a written agreement for profit-sharing in a partnership?

  No, but it is advisory
• If a partnership's profit is $100,000 and shared 3:2, what is Liam's share?

  $60,000
• How is interest on capital calculated for a partner who contributed $50,000 at 10%?

  $5,000
• What is the purpose of a partnership salary?

  To reward partners with specific responsibilities
• If Liam withdraws $1,000 and interest on drawings is 10%, what is the interest charged for 9 months?

  $75
• What accounts are needed to prepare for a partnership's financial position?

  1. Capital account
  2. Drawings account
  3. Current account
  4. Appropriation account
  5. Statement of financial position
• What does the capital account record in a partnership?

  Main capital contributions of each partner
• What does the drawings account record?

  Each partner's drawings for the year
• What happens to the drawings account at the end of the year?

  It is closed and transferred to current account
• How does interest on drawings affect partnership profits?

  It increases the partnership's profits
• What does a debit balance in a current account indicate?

  The partner is in debt to the business
• What does a credit balance in a current account indicate?

  The partner has increased their investment
• If Sean and Kensa have debit balances, what does that mean?

  Their drawings exceeded their profit shares

  
• What does Dana's credit balance indicate?

  Her drawings are less than her profit share