actpaco 3 - Unit 3 Accounting for Division of Profits &...

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Unit 3 Partnership Operations Accounting for a partnership form of business is basically similar to that of a sole proprietorship. For example, Purchase of supplies is debited either to Supplies or Supplies Expense account and when merchandise are sold on account, the entry is to debit Accounts receivable and credit the Sales account which is the same as that of a sole proprietorship In fact the Accounting Cycle of a Partnership is similar to that of sole proprietorship: 1. Recording of the business transactions 2. Posting to ledgers 3. Preparing a trial balance 4. Preparing the worksheet 5. Recording adjusting entries 6. Prepare financial statements 7. Recording and posting closing entries 8. Preparing a post-closing trial balance 9. Recording and posting reversing entries However, problems distinctive only to partnership operations are encountered in the following: 1. Recording of partner’s loan account when a partner lends money to a partnership. Date P A R T I C U L A R S P/R July 1 Cash X X X X Partner, loan or Loan Payable to Partner X X X X DEBIT CREDIT 2. Recording of loan extended by the partnership to the partner/s. Date P A R T I C U L A R S P/R July 1 Receivable from Partner X X X X Cash X X X X DEBIT CREDIT 3. Recording of the closing entries of a partnership/Dividing partnership profits or losses – individual drawing accounts of partners are not automatically closed to their capital accounts in order to maintain the original capital balances of the partners as stated in the Articles of Co-Partnership; drawing accounts are closed to the capital accounts only if agreed upon in the articles of co-partnership. Marivic Valenzuela-Manalo 1
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a. Distributing net income Date P A R T I C U L A R S P/R Dec. 31 Income Summary X X X X Rose, drawing X X X X Guada, drawing X X X X DEBIT CREDIT a. Distributing net loss Date P A R T I C U L A R S P/R Dec. 31 Rose, drawing X X X X Guada, drawing X X X X Income Summary X X X X DEBIT CREDIT Partnership net income or net loss is shared according to the partners’ capital ratio unless the
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actpaco 3 - Unit 3 Accounting for Division of Profits &...

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