Partnership- an association of two or more persons who contribute money, property or industry to a

common fund with the intention of dividing the profits among themselves
 
REASON FOR forming Partnership
 Permits pooling of capital and other resources w/o complexities and formalities of a corp
 Easier and costly to establish than a corp
 Not subject generally to much governmental regulation
 Partners can operate w/ more flexibility because they are not subject to the control of
Board of directors
 
TYPES of PARTNERSHIP
General partnership- each partner is generally liable to the partnership's creditors of partnership
assets are not sufficient to pay such creditors
Limited partnership- only one partner needs to be a general partner, the rest of the limited
partners ' obligations are limited to their capital contributions
 
FEATURES OF PARTNERSHIP
1. Ease of formation
2. Limited life
3. Assignment of partner's interest
4. Unlimited liability
5. Mutual agency- every partner is an agent and has the authority to act in behalf of
the partnership. Acts should not be beyond the scope of business transactions
6. Separate legal personality-
7. Sharing profits and losses
 
UNDERLYING EQUITY THEORIES
1. Proprietary theory- owner's POV
 Assets of a business as a belonging to the proprietor,
liabilities of a business are debts of the proprietor
A. Salaries of partners are considered as
distribution of income rather as a
determinant of net income
B. Unlimited liability of general partners
extends beyond the entity to the individual
partners
2. Entity theory- separate and distinct entity possessing its own existence apart
from the individual partners. Profits earned by partnership are usually viewed
as PROFIT OF THE ENTITY w/ each partner entitled to a distributive share of a
profit
PARTNER'S LEDGER ACCOUNTS
a. Capital accounts- real account and has normal CR balance
DR CR
 
o

 Perma  Initial
 nent investment
withdrawal  Additi
s onal
 Share investment
in net  Share
losses in net
 Drawin income
gs in excess
of a
specified
amount
 Closing
of a net DR
balance in
the
partner's
drawing
account
 
o  
b. Drawings accounts
DR CR

Temporary withdrawals in  Recurring
anticipation of profits reimbursable
 Periodic costs paid
withdrawal By the partner
s
 
c. Receivable from/ payable to a partner
Cash Xx  

  Loan payable to C Xx
 
PARTNER'S CAPITAL INTEREST
 Claim against the net assets of the partnership as shown by balance in the
partner's capital accounts
 An interest in profit and loss determines how the partner's capital interest will
increase or decrease as a result of subsequent operations
CASH INVESTMENTS
 Recorded at FV
 Cash denominated in foreign currency- current exchange rate
 Cash in bank under receivership- estimated recoverable amount
Property other than cash - AT FV
Liabilities- PV (FV) of the remaining cash flows