15.2 Profit and loss appropriation

Cards (31)

  • A partnership agreement is a legal contract that outlines the terms and conditions of the partnership
  • The terms outlined in the partnership agreement determine how the partnership's profits are appropriated
  • The profit sharing ratio in a partnership agreement defines the percentage of profits each partner receives
  • Match the term with its description in a partnership agreement:
    Interest on Capital ↔️ The rate of interest paid on partners' capital contributions
    Salaries ↔️ Fixed payments to partners for their services
    Interest on Drawings ↔️ The rate of interest charged on partners' withdrawals
    Profit Sharing Ratio ↔️ The percentage of profits allocated to each partner
  • The terms of a partnership agreement ensure fair and consistent distribution of profits
    True
  • The percentage of profits allocated to each partner is known as the profit sharing ratio
  • Fixed salaries paid to partners are referred to as salaries
  • What is the purpose of a partnership agreement?
    To outline partnership terms
  • Fixed salaries are paid to partners for their services.

    True
  • The profit sharing ratio determines the allocation of profits based on agreement
  • What are fixed salaries paid to partners for?
    Their services
  • Interest on capital is paid on partners' capital contributions.

    True
  • The Profit and Loss Appropriation Account is based on the terms of the partnership agreement.
  • What happens to the remaining profits after interest, salaries, and drawings are accounted for?
    They are shared based on the profit sharing ratio
  • Interest on capital is paid on the original capital contributions of partners.

    True
  • The profit and loss appropriation account shows how a partnership's profits are distributed based on the partnership agreement
    True
  • Match the element of a partnership agreement with its description:
    Profit Sharing Ratio ↔️ The percentage of profits allocated to each partner
    Interest on Capital ↔️ The rate of interest paid on partners' capital contributions
    Interest on Drawings ↔️ The rate of interest charged on partners' drawings
    Salaries ↔️ Any fixed salaries paid to partners
  • A partnership agreement ensures fair and consistent profit distribution among partners
    True
  • Interest on drawings is charged on partners' withdrawals from the partnership
    True
  • The profit sharing ratio in a partnership agreement is based on the partners' agreed-upon share
  • What is the primary purpose of the Profit and Loss Appropriation Account?
    To distribute partnership profits
  • What is interest on drawings charged on?
    Partners' withdrawals
  • Match the term with its description:
    Profit Sharing Ratio ↔️ Percentage of profits for each partner
    Interest on Capital ↔️ Rate on capital contributions
    Interest on Drawings ↔️ Rate on partners' withdrawals
    Salaries ↔️ Fixed payments to partners
  • The profit sharing ratio determines the percentage of profits each partner receives
  • What type of financial statement is the Profit and Loss Appropriation Account?
    Statement of profit distribution
  • Match the term with its description:
    Interest on Capital ↔️ Rate paid on capital contributions
    Salaries ↔️ Fixed payments to partners
    Interest on Drawings ↔️ Rate charged on withdrawals
    Profit Sharing Ratio ↔️ Percentage of profits allocated
  • Interest on drawings is charged on partners' withdrawals
  • What is the role of interest on capital in a partnership agreement?
    To reward capital contributions
  • Steps in preparing a Profit and Loss Appropriation Account:
    1️⃣ Calculate interest on capital
    2️⃣ Calculate interest on drawings
    3️⃣ Determine salaries to partners
    4️⃣ Allocate remaining profits based on the profit sharing ratio
  • The profit sharing ratio determines how profits are allocated based on agreed-upon shares
  • Why is it important to have a partnership agreement?
    To ensure fair profit distribution