Partenership Fundamentals
Introduction
- Welcome to the topic of Partnership Fundamentals in Accountancy.
- The focus is to cover the basics comprehensively to ensure no gaps in understanding.
Transition from Sole Proprietorship to Partnership
- Sole Proprietorship: Single-owner business, all profits and risks are the owner's.
- Partnership: Involves two or more individuals (min. 2, max. 50).
- Collective capital, shared risk, and combined managerial skills.
- Potential for greater growth and profit.
Essentials of Partnership
- Partnership Agreement: Terms and conditions of the partnership written in a document, known as the Partnership Deed or Articles of Partnership.
- Details profit-sharing, salaries, bonuses, commissions, interest on loans, etc.
- Separate Legal Entity Concept: Distinguishing between individual partners and the partnership firm.
- FirmтАЩs accounts are kept separate from personal accounts of partners.
Key Accounts in Partnership
- Profit & Loss Appropriation Account: Extension of the standard Profit & Loss Account.
- Distributes net profit among partners.
- Current Account
- Other Accounts: Rent payable account, partnerтАЩs loan account, etc.
Profit & Loss Appropriation Account
- Start with Net Profit (from P&L Account).
- Add Interest on Drawings (income for the firm).
Distribution from Net Profit
- Interest on Capital: Given to partners for their invested capital.
- PartnerтАЩs Salary, Bonus, Commission, Reserves: Deducted from net profit.
- Divisible Profit: The remaining profit shared among partners as per the profit-sharing ratio (PSR).
Profit Sharing Rules (without Partnership Deed)
- No interest on capital or drawings.
- No salary, bonus, or commission for partners.
- Profits/losses shared equally.
- Interest on loan payable at 6% per annum.
Future Classes Focus
- Detailed learning on P&L Appropriation, Interest on Capital, PartnerтАЩs Salary, Bonus, Commission, and Reserves.
- Practice will reinforce the concepts.
Conclusion
- Revise the basics covered today thoroughly.
- Make notes and go through study materials.
- Stay motivated and continue practicing.
Thank you for joining. See you in the next class!