Profits

1. the profits will be divided according to partner’s agreement.

2. if there is no agreement
 as to capitalist partner, the profits shall be divided according to their capital contributions
(according to the ratio of original capital investments or in its absence, the ratio of capital balances
at the beginning of the year).
 as to industrial partners (if any), such share as may be just and equitable under the
circumstances, provided, that the industrial partner shall receive such share before the capitalist
partners shall divide the profits.
Losses
1. the losses will be divided according to partners agreement.
2. if there is no agreement as to distribution of losses but there is an agreement as to
profits, the losses shall be distributed according to the profit-sharing ratio.
3. in the absence of any agreement
 as to capitalist partner, the losses shall be divided according to their capital contributions (according
to the ratio of original capital investments or in its absence, the ratio of capital balances at the
beginning of the year).
 as to purely industrial partners (if any), shall not be liable for any losses.

C. Distribution of Profits or Losses based on partner’s agreement – Profit and loss ratio is what we call on how the
profits or loss be distributed among the partners.
c.1 Journal entry in the distribution of profit:
Debit the Income Summary account and credit to partners Drawing account

c.2 Schemes that partners may agree in distributing operations profit or loss:
a. Equally or in agreed ratio
b. Based on partner’s capital contribution: ratio of original investment: ratio based on their beginning capital balance
of the year; ratio of their ending capital balance; or based on the average capital balance.
c. By allowing interest on partner’s capital and the balance in an agreed ratio.
d. By allowing salaries to partners and the balance in an agreed ratio.
e. By allowing bonus to the managing partner based on profit and the balance in the agreed ratio.
f. By allowing salaries, interest, on partner’s capital, bonus to the managing partner and the balance in an agreed
ratio.