Hence, a debit balance in a partner's current account appears as a current asset on the balance sheet. A credit balance indicates that the business owes the partner this amount and hence the current account appears as a liability on the balance sheet. In case of current account , the tag tends to change periodically. If you have maintained your balance in the current account , it is an asset to you and liability for the bank.
On the contrary, if you happen overdraw your current account , that current account becomes an asset to the bank. What is the difference between partners capital account and current account? In one sense, there is no difference. A partner's total capital is the sum of the balances on their capital account and their current account. Where does partners current account appear on balance sheet? The current account may show credit and debit balance at the end of the year.
If they show Credit balances, they appear on the liability side of the Balance Sheet of the firm along with Fixed Capitals. Why do we prepare current account? Partners current account is prepared when you have a Fixed Capital system. Current Account is used to give effect to profits and losses, drawings, remuneration and interest amounts payable to partners etc.
This may be presented in a tabular format as shown in the next section. Income statement The main part of the income statement is prepared exactly as for a sole trader.
Points to watch:. They belong only in the division of profit statement section. Drawings are debited to partners' current accounts. Statement of division of profit The easiest format to adopt here is a simple columnar presentation. See Figure 1 below figures invented. To deal with this, make a transfer from one column to another in the tabulated statement.
You have to divide the profit on a time basis between the periods, then apply the details given to the apportioned profits. Remember to take half a year's salary for a half-year period. Your table then shows the total profit shares for the year calculated for the two periods involved. This is a variation on b above and always causes problems for candidates.
What you have to realise is that for the partners not bearing the expense, the profit is that shown by the income statement plus the special expense. You have to split that increased profit among the partners, then deduct the special expense from the partners who are to bear it. P, after having been a sole trader for some years, entered into partnership with Q on 1 July 20X2, sharing profits equally. Discussion A little clear thinking is required.
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Upcoming SlideShare. Like this presentation? Why not share! Partnership accounts by Laxumikant Shasttri views Partnership Accounts by iarthur views Partnership accounts by Sam Catlin views Appropriation account for partnership by Dyann Barras views. Embed Size px. You will probably smile later. One thing to note is: You might not be able to see drawings in the profit and loss appropriation account because drawing is not an expenses, it is a direct cash withdrawal it has a personal relationship to the partner but not the business operations so it will not appear in your Profit and Loss account.
To reiterate, anything that has no relationship to the business operations such as drawing and goodwill, will only affect the Balance Sheet accounts. You are commenting using your WordPress. You are commenting using your Google account. You are commenting using your Twitter account. You are commenting using your Facebook account. Notify me of new comments via email.
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