Accounting II Lecture - Partnerships and Business Forms

Introduction

• Presenter: David Krug, full-time professor at JCCC for 11 years.
• Topic: Launch of Accounting II video series.
• Textbook: "Fundamentals of Accounting Principles Volume 2, Chapters 12-25" by Wild, Shaw, and Chiappetta (21st Edition).

Lecture 202 Overview

• Purpose: Introduction to Accounting II and its new video series.
• Numbering: Lecture 202 follows Lecture 201 (class policies), differing from Accounting I’s sequence.

Review of Basic Accounting

• Quiz Recap: Reviewed debit and credit balance accounts.
  • Examples: Accounts Receivable (Debit), Consulting Revenue (Credit).
• Financial Statements: Placement of various accounts like Unearned Revenue (Balance Sheet) and Depreciation (Income Statement).

Sole Proprietorship Recap

• Main Focus in Accounting I: Sole proprietorships.
• Transition to Accounting II: Focus will shift to partnerships and their characteristics.

Partnership Form of Organization

• Voluntary Nature: Cannot force someone to join a partnership.
• Limited Life: Ends if a partner dies, similar to marriage.
• Co-ownership of Property: Shared business assets.
• Partnership Agreement: Legal document outlining terms.
  • Covers income/loss division, partner exit strategies, cash crises.
  • Recommended despite initial trust, akin to a prenuptial agreement.

Partnership Characteristics

• Mutual Agency: Partners can act on behalf of the partnership.
• Taxation: Partnership itself doesn’t pay taxes, only partners on their individual returns.
• Unlimited Liability: Personal assets at risk in legal claims.

Other Business Forms

• Limited Partnership (LP): General partners handle operations, limited partners have limited liability.
• Limited Liability Partnership (LLP): Protects against malpractice/negligence claims, common in medical/legal fields.
• Limited Liability Corporation (LLC): Combines benefits of limited liability and no corporate tax; best for small businesses.

Business Entity Concepts

• Corporations: Separate legal entities; can sue/be sued.
• Double Taxation: Applies to C Corps like Sprint, not applicable to partnerships or LLCs.
• Capital Accounts in Partnerships: Each partner has their own capital and withdrawal accounts.

Financial Transactions in Partnerships

• Initial Investments: Partners contribute assets to the business, reflected in partnership's capital accounts.
• Example Transactions:
  • Bob invests cash and equipment into partnership.
  • Jane's investment includes cash, an automobile, and assumed liability (note payable).

Income Allocation in Partnerships

• Closing Process: Similar to sole proprietorships but involves multiple capital accounts.
• Income Division Methods:
  • Stated Ratio: Based on agreed percentages.
  • Capital Balances: Allocated relative to each partner's investment.
  • Salary and Interest Allowances: Allocations based on partnership agreements, factoring in partner roles and capital contributions.

Homework Assignments

• Lucinda and Donna Handout: Complete parts A and B.
• Scott and Mike Handout: Follow similar process for journal entries.
• Exercises: Quickstudy 12.1, Exercise 12.1 and 12.4.

Conclusion

• Recap: Importance of partnership agreements and understanding financial distributions.
• Next Steps: Review partnership characteristics and prepare homework assignments.