PARTNERSHIP FINAL ACCOUNTS

INCOME STATEMENT OF PARTNERSHIP

• Same format as that of a sole trader
• Tackle adjustment same as for a sole trader
• Final figure for income statement is PROFIT FOR THE YEAR

APPROPRIATION ACCOUNT

• After preparing income statement, a partnership business has to appropriate its profit among the partners.
• Appropriation takes the form of interest on capital, salary, bonus, commission.

TREATMENT OF INTEREST ON DRAWINGS

• Interest on drawings act as de motivator for excessive drawings by partners.
• For the partnership business, interest on drawings will be received from partners to the business.
• So, we should add the interest on drawings to profit for the year, then only distribute to partners their due.

INTEREST ON CAPITAL

• As explained in our first zoom meeting, a partner invests his money into partnership business so as to get something in return.
• Interest is what will be paid to him for his capital contribution.
• To motivate him to invest into the partnership
• Acts as a compensation for the loss when he foregoes interest on bank deposits.
• Interest on capital will be deducted from profit for the year, because partners are being paid that money by the partnership business

Residual profit or residual loss is the profit that remains after deducting all incomes earned by partners, such as I.o.c.

Residual profit/loss is the final part of the appropriation account, whereby, they are distributed and shared between the partners in their profit sharing ratio.

APPROPRIATION ACCOUNT

CURRENT ACCOUNT

• Current account is maintained by partners if the partnership has fixed capital account.
• Contains all items related to the partners, from the appropriation account.

ITEMS NOT IN APPROPRIATION BUT IN CURRENT ACCOUNT

• Drawings
• Salary paid to partners
• Interest on loan from partner

IF FLOATING CAPITAL ACCOUNT

CURRENT ACCOUNT

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