PARTNERSHIP OPERATIONS Accountng Cycle Cycle of a Parnership – same same as in sole proprietorship 1. 2. 3. 4. 5. 6. 7. .
Prepare journal entries Post to ledgers Prepare a trial balance Prepare adjusng entries Prepare fnancial statements Prepare closing entries Prepare a post-cl -closing trial ba balance Prepare re!ersing entries
Special Concerns I. Journal enries " same as in sole proprietorship e#cept $or the $ollo%ing transacons %hich are peculiar to a partnership&
a.
Part Partne nerrs' loan loanss " part partne nerr len lends ds mone mone( ( to to par partn tner ersh ship ip
)ash *c *ccounts+,oans+ otes Pa(able or ue to Partner or ,oan $rom Partner b.
### ###
Part Partne ners rs'' borro borro%i %ing ngss $rom $rom par partn tner ersh ship ip " par partn tner ersh ship ip lend lendss mone mone( ( to par partn tner erss
*ccounts+,oans+ otes /ecei!able or ue $rom Partner or ,oan to Partner )a )ash
###
###
saemens " the same as in sole proprietorship e#cept& II. Financial saemens
a.
Statement of Financial Posion " the o%ner's e0uit( e0uit( secon is labeled Partners' Partners' 0uit( 0uit(
Income Statement " b. " an addional secon called i!ision o$ Proft and ,oss is included. his proft distribuon pro!ides a $ull anal(sis o$ the distribuon o$ earnings %hich is presented at the boom o$ the partnership income statement. statement.
c. " a statement that reports the changes that Statement of Changes in Partners’ Equity " ha!e taen taen place in partners' e0uit( during the period. ach partner is pro!ided a column heading %hich e#plains details o$ the changes in their e0uit( account. III. Closing enries – dra%ing dra%ing accounts are not automacall( closed to the capital accounts dra%ing accounts are closed to the capital accounts onl( i$ agreed upon in the arcles o$ co-partnership.
)losing the boos at the end o$ the accounng period& 1. erchandise n!entor( ncome 8ummar( o set up ending in!entor(
## ##
2. *ll ominal *ccounts %ith )redit 9alances## ncome 8ummar( ## o close all nominal accounts %ith credit balances to income summar(. 3. ncome 8ummar( ## *ll ominal *ccounts %ith ebit 9alances ## o close all nominal accounts %ith debit balances to income summar(. NET Income 4. ncome 8ummar( Partners' ra%ing o distribute profts to partners
## ##
NET Loss 4. Partners' ra%ing ncome 8ummar( o distribute losses to partners
## ##
)/*88+)/*88 )*P*, /*;< *))=>8 CAPITAL
ecrease Permanent %ithdra%al? 8ale o$ e0uit(
ebit balance in dra%ing
ncrease nial in!estment *ddional n!estment Pa(ment o$ partnership liabilit( $rom personal $unds )redit balance in dra%ing
Rules for Dividing Pro and oss
:
DRAWING
ncrease emporar( %ithdra%al 8hare in et ,oss
ecrease 8hare in et ncome
1.
As to Capitalist Partner a. i!ision o$ Proft 1. n accordance %ith agreement. 2. n the absence o$ an agreement@ di!ision o$ profts is in accordance %ith capital contribuons.
b. i!ision o$ ,oss 1. n accordance %ith agreement. 2. $ onl( the di!ision o$ profts is agreed upon@ then the di!ision o$ losses %ill be the same as the agreement on di!ision o$ profts. 3. n the absence o$ an agreement@ di!ision o$ losses is in accordance %ith capital contribuon. 2.
As to Industrial Partner a. i!ision o$ Proft 1. n accordance %ith agreement. 2. n the absence o$ an agreement@ the industrial partner shall recei!e a just and e0uitable share o$ the profts.
b. i!ision o$ ,oss 1. n accordance %ith agreement. 2. n the absence o$ an agreement@ the industrial partner shall ha!e no share in the losses. !e income is vie"ed as a reurn for
1. 2. 3.
ser!ices rendered AsalariesB capital in!estment AinterestB entrepreneurial abilit( or managerial sills AbonusB
#ehods of Dividing !e $ncome
1.
Equally
2.
Ar!"rary Ra#o a. Cracons b. Percentages c. /ao and Proporon
$.
Ca%!"al Ra#o a. =riginal+nial in!estment b. 9eginning capital balance c. nding capital balance d. *!erage capital " most e0uitable method
&.
Allo'!n( Salar!es) In"eres" an* +onus " considered as part o$ the distribuon o$ net income Salaries " to gi!e recognion to the abilit(@ e#perience or me de!oted b( a partner to a. the business.
Interest - to gi!e recognion to diDerences in the capital contribuon gi!en in b. proporon to the period such capital %as actuall( used. Bonus " incen!e+special compensaon gi!en to a partner $or superior income realiEed. c. t is usuall( based on net income.
General Gu!*el!nes 1. Partner salar( allo%ances@ interest allo%ances on capital account balances and bonus are not e#penses in the determinaon o$ partnership net income. 2. he pro!ision on salaries and interest must be en$orced regardless o$ %hether operang results is a proft or loss. 3.
he pro!ision on bonus is en$orced onl( %hen operang results is a proft.
4. $ the partnership agreement specifes that income is to be di!ided based on partners' capital balances but $ails to speci$( ho% capital balances are to be computed@ the a!erage capital balances should be used i$ it can be computed. $ not@ the original capital balances should be used.
%&A#P%
5+1 1?+31
1?@??? 5?@???
1+1 7+1
4??@??? 16?@???
,OHN CAPITAL 7+1 5?@??? 1+1 4+1 F+3?
-ARTHA CAPITAL 3??@??? 2??@??? 15?@???
NET INCO-E OR THE PERIOD /P 10)
DIISION O PROITS 3 LOSSES 1. equally ncome 8ummar( Gohn@ ra%ing artha@ ra%ing o distribute profts to partners 2.
75@??? 75@???
arbitrar( rao a. percentage 4?H&6?H b. $racon 2+5&3+5
ncome 8ummar( Gohn@ ra%ing artha@ ra%ing o distribute profts to partners $.
15?@???
)apital /*=
15?@??? 6?@??? F?@???
a.
9eginning )apital /ao & 4??&3?? or 4+7&3+7
ncome 8ummar( Gohn@ ra%ing artha@ ra%ing o distribute profts to partners
b. nding )apital /ao 5??& 6?? or 5+11&6+11 nc 1 om e 8u m ma r( G 6 o h n @ r a % i n g a rt h a @ r a % i n g o distribu te profts to partner s c. *!erage )apital /ao
15?@???
[email protected] 64@25.71
ncome 8ummar(
15?@???
Gohn@ ra%ing artha@ ra%ing o distribute profts to partners
Computaon of Average Capital ate )apital Peso onths 9alance Gohn IGan 1 4??@??? 4 Ia( 1 3F?@??? 2 IGul(1 55?@??? 4 =ct 31 5??@??? 2 artha IGan 1 3??@??? 3 *pril 1 5??@??? 3 IGul(1 45?@??? 3 8ept 3? 6??@??? 3
Com%u"a#on
*!erage )apital& Gohn P465@??? artha 462@5?? PF27@5?? JJJJJJJ
75@2?2.16 74@7F7.4
o. o$ onths >nchanged
P1@6??@??? 7?@??? 2@2??@??? 1@???@??? P5@5?@???+12 PF??@??? 1@5??@??? 1@35?@??? 1@??@??? P5@55?@???+12
S4are !n Ne" Income o5
*!erage )apital
P465@???
462@5??
P10)
15?@??? # 465???+F27@5??J P 75@2?2.16 15?@???# 462@5??+F27@5?? J P 74@7F7.4
4. *llo%ing interest on partners' capital balances 16 !n"eres" on e(!nn!n( ca%!"al) alance equally Sc4e*ule o5 D!s"r!u#on o5 Pro7"s ,o4n
1?H nterest on beginning )apital Gohn A4??@??? # 1?HB
P4?@???
-ar"4a
To"al
artha A3??@??? # 1?HB 9alance e0uall(A15?@???-7?@???B S4are !n Ne" Income
4?@??? P8)
ncome 8ummar(
P3?@??? 4?@??? P9)
P7?@??? ?@??? P10)
15?@???
Gohn@ ra%ing artha@ ra%ing o distribute profts to partners
?@??? 7?@???
5.*llo%ing salaries to partners Salary allo'ance o5 P0) "o ,o4n an* P&) "o -ar"4a) alance !n "4e ra#o o5 2:$
Sc4e*ule o5 D!s"r!u#on o5 Pro7"s
8alar( allo%ance 9alance 2&3 S4are !n Ne" Income ncome 8ummar(
,o4n P5?@??? 24@??? P9&)
-ar"4a P4?@??? 36@??? P9;)
To"al PF?@??? 6?@??? P10)
15?@???
Gohn@ ra%ing artha@ ra%ing o distribute profts to partners
74@??? 76@???
6.9onus to managing partner based on net income 2?H 9onus to Gohn@ the managing partner@ balance e0uall( Sc4e*ule o5 D!s"r!u#on o5 Pro7"s
2?H 9onus to Gohn 9alance e0uall( S4are !n Ne" Income ncome 8ummar(
,o4n P3?@??? 6?@??? P<)
-ar"4a
6?@??? P;)
To"al P3?@??? 12?@??? P10)
15?@???
Gohn@ ra%ing artha@ ra%ing o distribute profts to partners
F?@??? 6?@???
7. *llo%ing interest on partners' capital balances@ salaries and bonus@ balance e0uall(. =06 !n"eres" on en*!n( ca%!"al) =salary allo'ance "o ,o4n) P$)> -ar"4a) P&) =16 onus "o ,o4n =alance equally Sc4e*ule o5 D!s"r!u#on o5 Pro7"s ,o4n
-ar"4a
To"al
1?H interest on ending capital Gohn- 5??@??? #5H artha- 6??@??? # 5H
P25@???
8alar( allo%ance 1?H 9onus to Gohn 9alance e0uall( S4are !n Ne" Income
3?@??? 15@??? 5@??? P90)
ncome 8ummar(
P3?@???
P55@???
4?@???
7?@??? 15@??? 1?@??? P10)
5@??? P90)
15?@???
Gohn@ ra%ing artha@ ra%ing o distribute profts to partners
75@??? 75@???
. *llo%ing interest on partners' capital balances@ salaries and bonus@ balance e0uall(.A E I!C"#E IS I!S$FFICIE!% =16 !n"eres" on en*!n( ca%!"al) =salary allo'ance "o ,o4n) P0)> -ar"4a) P;) =26 onus "o ,o4n =alance equally Sc4e*ule o5 D!s"r!u#on o5 Pro7"s ,o4n
-ar"4a
1?H interest on ending capital Gohn- 5??@??? #1?H artha- 6??@??? # 1?H
P5?@???
8alar( allo%ance 2?H 9onus to Gohn #cess e0uall( S4are !n Ne" Income
5?@??? 3?@??? A5?@???B P8)
ncome 8ummar(
P6?@???
P11?@???
6?@???
11?@??? 3?@??? A1??@???B P10)
A5?@???B P9)
15?@???
Gohn@ ra%ing artha@ ra%ing o distribute profts to partners
NET LOSS= P10)
F. *llo%ing interest on partners' capital balances@ salaries and bonus@ balance 4&6 =16 !n"eres" on en*!n( ca%!"al) =salary allo'ance "o ,o4n) P0)> -ar"4a) P;) =26 onus "o ,o4n =alance &:;
To"al
?@??? 7?@???
Sc4e*ule o5 D!s"r!u#on o5 Ne" Loss ,o4n
1?H interest on ending capital Gohn- 5??@??? #1?H artha- 6??@??? # 1?H
-ar"4a
P5?@???
8alar( allo%ance 5?@??? 9alance 4&6 A14@???B S4are !n Ne" Income ?P&8)@ No onus s!nce +onus !s al'ays ase* on ne" !ncome.
Gohn@ ra%ing artha@ ra%ing ncome 8ummar( o distribute losses to partners
To"al
P6?@???
P11?@???
6?@??? A222@???B ?P12)@
11?@??? A37?@???B ?P10)@
4@??? 1?2@??? 15?@???
PREPARATION O INCO-E STATE-ENT 3 STATE-ENT O PARTNERS EBIT T4e 5ollo'!n( selec"e* le*(er alances 'ere "aen 5rom "4e oos o5 N-A Com%any epreciaon #pense-=Kce 0uipment 3@3? iscount ,ost 25? oubLul *ccounts #pense 2@34? Creight in 1@25? Creight out 6?
nterest #pense nterest ncome arlon@ ra%ing
4@5? 1@42? 5@5?? 12?@? ?? 1?@5? ? 1??@? ?? 1@5 ?? 77@77 7 52? 366@2 ?? 3@653 1@26 5 3?@?? ? 54@2? ? 642@7 75 1@F3 5 1?@5 ? 4@56?
arlon@ )apital iranda@ ra%ing iranda@ )apital erchandise n!entor(@ Ganuar( 1 erchandise n!entor(@ ecember 31 =Kce 8upplies used Purchases Purchase iscount Purchase /eturns and *llo%ances /ent #pense 8alaries : ;ages 8ales 8ales )ommission 8ales iscount 8ales /eturns : *llo%ances
N-A Com%any Income S"a"emen" or "4e ear En*e*) Decemer $1) 21& No"e
et 8ales )ost o$ 8ales
1 2
P627@635 A456@225B P171@41? 1@771 P173@11
3
4 5 7
PF?@F? 1F@615 5@1??
A114.625B P57@576 FFFFFF
Sc4e*ule o5 D!s"r!u#on o5 Pro7"s -arlon
1?H interest on beginning capital arlon- 12?@??? #1?H iranda- 1??@??? # 1?H
-!ran*a
To"al
P12@??? P1?@???
9alance e0uall( S4are !n Ne" Income
17@7 P2<)988 FFFFFF
P22@???
17@7 35@576 P29)988 P09)09; FFFFFF FFFFFF
NOTES TO INANCIAL STATE-ENTS
ote 1
et 8ales 8ales 8ales iscount
P
8ales /eturns : *llo%ances
P
642@775
P
15@14 ? 627@6 35
1?@5 ? 4@56 ?
et 8ales /e!enue ote 2
)ost o$ 8ales erchandise n!entor(@ Ganuar( 1 *dd& et cost o$ purchases
P
Purchases
P
Purchase iscounts
P
Purchase /eturns and *llo%ances
3@65 3 1@2 65
et purchases
P
*dd& Creight in
366@2 ??
21@F1 344@2 2 1@25 ?
otal goods a!ailable $or sale
P
erchandise n!entor(@ ecember 31 )ost o$ 8ales ote 3
=ther ncome
1@5 ??
P
345@5 32 534@? 32 77@77 7 456@2 55
351
P nterest ncome otal
ote 4
ote 5
ote 7
P
*dministra!e #penses 8alaries : ;ages /ent #pense epreciaon #pense-=Kce 0uipment oubLul *ccounts #pense =Kce 8upplies used otal
P
P
1@42? 1@77 1
54@2?? 3?@??? 3@3? 2@34? 52? F?@F?
istribuon )osts 8ales )ommission Creight out otal
P
1@F35 6? 1F@615
Cinance cost nterest e#pense iscount lost otal
P P P
4@5? 25? 5@1??
P
N-A Com%any S"a"emen" o5 C4an(es !n Par"ners Equ!"y or "4e ear En*e*) Decemer $1) 21& -arlon
)apital balances@ Ganuar( 1 et ncome 8ub-total Partners' ra%ing )apital balances@ ecember 31
P12?@??? 2F@7 P14F@7 A5@5??B P144@2 FFFFFFFF
-!ran*a
P1??@??? 27@7 P127@7 A1?@5??B P117@2 FFFFFFFF
To"al
P22?@??? 57@576 P277@576 A16@???B P261@576 FFFFFFFF
