Partnership Accounts

Mr Arthur

Aims of the Lesson

1. Partnerships??

2. Advantages/ Disadvantages of Partnerships

Partnerships?

A partnership is a form of business, where partners share profits

Consists of between 2-20 members No written agreement is required but

agreement is recommended Examples

Accountants Solicitors Dentists

Advantages/Disadvantages of Partnerships

Advantages Easy to form, no legal

formalities Partners can combine

expertise Combine capital Spread workload Share decision making Easier to raise funds

i.e. loans etc

Disadvantages More people to share

in the profits General partners have

unlimited liability Disagreements can

occur Partnership may be

dissolved if partner dies

Aims of Lesson 2

Last Lesson

1. Partnerships??

2. Advantages/ Disadvantages of Partnerships

Today’s Lesson

1. Partnership Agreements

2. Section 24 of Partnership Act

Partnership Agreements

Most partnerships create a Partnership Agreement when forming. This will include details of: Amount of Capital to be invested How profits and losses should be shared Amount of drawings allowed Interest on Capital Interest on drawings Salary agreements

Section 24 of Partnership Act 1890

When partners do not create a partnership agreement they are protected by section 24 of Partnership Act 1890. It states: All partners are entitled to contribute equally Profits and losses are to be shared equally No interest is payable on capital invested Partners are entitled to 5% on loans given to the

partnership Accounts must be freely available to partners No salaries No new partners can be introduced without prior

agreement

Aims of Lesson 3

Last Lessons Partnerships?? Advantages/

Disadvantages of Partnerships

Partnership Agreements

Section 24 of Partnership Act

Today’s Lesson

1. Limited partners

2. Accounting for partnerships

Limited Partners Under the Limited Partnership Act 1907 a

partnership may register to allow one or more partners to have limited liability

Limited partners may not: Withdraw any capital they have invested during

the lifetime of the business Manage the partnership Makes contracts on behalf of the partnership

Partnership Accounts

In addition to a T, P and L Account, a partnership will prepare an Appropriation Account, and keep separate Capital, Drawings and Current Accounts for each partner