A partnership is an unincorporated business owned by two or more persons who have come together voluntarily with the aim of making a profit. In a partnership, there must be an agreement called a partnership agreement which contains the following:
- Capital contributed by each partner.
- The ratio in which profits are to be shared.
- The rate of interest, if any, to be paid on capital before profits are shared.
- The rate of interest, if any, to be charged on partners drawings.
- Salaries to be paid to partners.
- Arrangements for the admittance of new partners.
- Procedures to be carried out when a partner retires.
Appropriate Account
In the sole proprietorship, the net profit obtained from the net profit or loss account is transferred directly to the capital account. On the other hand, for a partnership, the net profits obtained from the profit and loss account is transferred to another section of the profit and loss account called the appropriation account. The main purpose of the appropriation account is to appropriate/divide the net profits among the partners according to the partnership deed/agreement. However, other expenses related to the partners such as interest on capital and partners’ salary, are debited to this account while interest on drawings which is income are recorded on the credit side.
Current Account
The purpose of the current account is to record transactions that affect the partners capital account so that the capital of the partners remains fixed. Credit balances on the current account signify that profits still available for each partner to draw out of the business. The following is an example of an appropriation account for a partnership business comprising of three members: Jimmy, Jones and Jack.
| Profit and Loss Appropriation Account for the year ended December 2011 | |||
| $ | $ | $ | |
| Net Profit | 25,200 | ||
| Less Salaries: | |||
| Jimmy | 3,000 | ||
| Jones | 1,000 | ||
| 4,000 | |||
| Interest on Capital: | |||
| Jimmy | 600 | ||
| Jones | 400 | ||
| Jack | 200 | ||
| 1,200 | |||
| (5,200) | |||
| 20,000 | |||
| Share of Profits: | |||
| Jimmy (2/5 of 20,000) | 8,000 | ||
| Jones (2/5 of 20,000) | 8,000 | ||
| Jack (1/5 of 20,000) | 4,000 | ||
| 20,000 | |||
Accounting for Non-Profit Organizations
| Statement of Activities | |
| Particulars | Amounts $ |
| Contribution | 15,000 |
| Membership Dues | 8,000 |
| Program Fees | 5,000 |
| Grants | 7,000 |
| Investment Income | 3,000 |
| Total Income | 38,000 |
| Expenses | |
| Fund Raising Expenses | 5,000 |
| Management and General Expenses | 7,000 |
| Major Program Expenses | 6,500 |
| Total Expenses | 18,500 |
| Change in Net Assets (Total Income-Total Expenses) Net Profit | 19,500 |
| Statement of Financial Statement | |||
| Assets | Liabilities | ||
| Grants | 7,000 | Accounts Payable | 21,000 |
| Accounts Receivables | 25,000 | Loan Payable | 15,000 |
| Cash | 23,500 | ||
| Net Assets | |||
| Retained Earnings | 19,500 | ||
| Total | 55,500 | Total | 55,500 |