Articles of partnership

Articles of partnership are included in a formal agreement between the participants in a business
entity who want to combine their capital and labor. The articles can address a number of issues,
such as:
 The amount of capital contributions to be made by each party
 The circumstances under which arguments can be submitted to arbitration
 The circumstances under which partners can be expelled
 The circumstances under which partnership interests can be sold or transferred
 The duties assigned to each partner
 The primary place of business of the partnership
 The name of the business entity
 The ratio of profits and losses to be allocated to each partner.
Accounting for Partnership:
A partnership has a different organisation that a sole proprietorship or a company. So accounting
for a partnership firm has some of its own peculiarities, like the Capital Account or the Profit and
Loss Appropriation Account. Let us learn some basic concepts of partnership accounts.

 Nature of Partnership and Partnership Deed

 Distribution of Profit Among Partners
 Guarantee of Profit to a Partner, Past Adjustments and Final Accounts
Partnership formation

Formation of a partnership involves investment by the partners in the partnership either in the
form of cash or in the form of assets. When partners introduce cash or any other asset, cash or
the other asset account is debited at the value agreed by the partners and the corresponding
partner's capital account is credited by the same amount.

Example:
JI Consultancy is a partnership established by Jazz and Indigo. The business is engaged in
providing consultancy to telecommunication companies on revenue assurance. On 1 January
20X2, Jazz contributed contribute cash of $300,000 while Indigo introduced a vehicle with a
written down value of $40,000 and fair value of $80,000, paid 2 years prepaid rent for office
building of $70,000 and introduced technical equipment of $60,000 and marketable securities of
$100,000. A firm of Indigo's friend did the furnishing work for $70,000 and JI Consulting agreed
to pay off the loan in the first week of the partnership's formation.

Journalize the formation of the partnership.

Solution:
The formation of partnership would involve recording the assets on the partners' balance sheet
and creating corresponding capital accounts by the following journal entry:
Financial Reporting?
Financial reporting is the disclosure of financial results and related information to management
and external stakeholders (e.g., investors, customers, regulators) about how a company is
performing over a specific period of time.

Financial reports are usually issued on a quarterly and annual basis and include the following:

 Balance Sheet or Statement of Financial Position – reports on a company’s assets,

liabilities, and owners’ equity at a given point in time, usually the end of a fiscal quarter
or year.

 Income Statement or Profit and Loss Report – reports on a company’s income, expenses,
and profits over a period of time, such as a fiscal quarter or year. This includes sales and
the various expenses incurred during the stated period.

 Statement of Changes in Equity or Statement of Retained Earnings – reports on the

changes in equity of the company during the stated period, such as a fiscal quarter or
year.

 Cash Flow Statement – reports on a company’s cash flow activities, including its
operating, investing, and financing activities. These are typically referred to as sources
and uses of cash.

Partnership

Definition: A legal form of business operation between two or more individuals who share
management and profits. The federal government recognizes several types of partnerships. The
two most common are general and limited partnerships.