What is partnership? Definition and Characteristics

Definition The partnership is a relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all. Characteristics There must be two or more person to form a partnership. There must be a written or verbal agreement between all the concerned persons. The …

Read moreWhat is partnership? Definition and Characteristics

Procedure to open books of partnership

At the time of formation of partnership, each partner contributes his capital either in the form of cash or non-cash. Separate accounts of capital are opened to record the investment of each partner. The partner can invest in the business in any of the following ways. By contributing cash. By contributing non-cash assets. By combining …

Read moreProcedure to open books of partnership

What is Partnership Deed?

What is a Partnership Deed? – Meanings The document which contains terms and conditions of partnership is known as Partnership Deed. In the absence of an agreement, the partnership Act is applied, However, the act leaves it to the discretion of partners. The written agreement between partners will be helpful in case of disputes between …

Read moreWhat is Partnership Deed?

Fixed and Fluctuating Capitals

The capital account of partners can be kept in any of the following two ways: Fixed capital method Fluctuating Capital method. Fixed Capital Method Under the fixed nature of capital, the capital of each partner remains constant from the start of partnership till at the end of it. No adjustments like interest on capital, partner’s …

Read moreFixed and Fluctuating Capitals

What are reserves in partnership?

Definition: A Reserve, by definition, is that part of the profit that is not distributed among the business’s owners but retained in the business. Explanation: If the entire profit made by a firm is credited to partner’s current accounts, the partners become entitled to withdraw it, in cash, from the firm’s coffers. This can seriously …

Read moreWhat are reserves in partnership?

Difference between reserves and provisions

The important difference between reserves and provisions is their nature. A Provision is created in respect of a loss or expense that is most likely to happen in the near future. For example, provisions for bad debts are created because a business knows out of experience that some of its debtors will fail to fully …

Read moreDifference between reserves and provisions

Year end adjustments in partnership

In addition to the usual year end adjustments (e.g. for accrued and prepaid expenses) made by traders to ensure correct measurement of year’s profits and a true reflection of their financial position in the balance sheet, the following adjustments are peculiar to partnership firms: (a). If any expense has been paid by a partner on …

Read moreYear end adjustments in partnership

Distribution of profit in partnership

Profits or losses, made by a firm should be divided among its partners in accordance with the provision of their Partnership Deed. However, if there is no written or oral agreement among the partners, the Law prescribes that profits and losses should be shared equally by the partners. It is important to note that under …

Read moreDistribution of profit in partnership

Journal entries under fluctuating and fixed capital methods

Interest on Capital According to partnership Act, no interest is provided, but if it is agreed among the partners, it will be provided at an agreed rate. Interest on capital is not an expense of the business, that is, it is not deducted from the total income to arrive at the net income. It is …

Read moreJournal entries under fluctuating and fixed capital methods

Distribution of profit and loss – MCQs

Take a quick Multiple Choice Questions (MCQs) test about Distribution of profit and loss. These MCQs can help you to prepare for your exams, interviews and different tests. Just click the “start quiz” button and start distribution of profit and loss MCQs quiz. You can also check: Distribution of profit and loss short questions Distribution …

Read moreDistribution of profit and loss – MCQs