Partnership -
Intellectual And Capital Pooled Together

Partnership is intellectual and capital pooled together into a legal agreement between two or more persons agreed upon to carry out their common interest. The disadvantages of sole proprietorship firm in view of limited financial resources, functional disability, less credibility and the biggest disadvantage is that, no legal distinction exists between the business and the individual owner. As such, the individual owner is personally exposed to the total potential business liabilities or debts incurred by the business with no protection or limitation even if it comes to selling off the personal assets of the owner for paying off the liabilities. All these led to the growth and formation of partnership firm.

In case of big business which requires huge resources, one of the inevitable ways is to form partnership by joining hands with person(s) who can complement the efforts by bringing in the necessary intellectual as well as financial capital.

This chapter is devoted to the different aspects of partnership accounting with regard to

  1. Appropriation of Profits And Losses - Allocating a portion of year's profits
  2. Goodwill - The extra value of reputation
  3. Addmission of a new partner - The adjustment required to accomodate a new partner
  4. Retirement or death of a partner - The necessary adjustment for accounting purpose
  5. Dissolution partnership and partnership firm: The new beginning post termination

Although the basic accounting procedure is similar in all cases, there are certain special features in the accounts of a partnership firm. In the case of a partnership firm, for example, the special features relate to the distribution of profits, the maintenance of capital accounts and the adjustments required when the firm is reconstituted. We try to elucidate the basic aspects of partnership accounts like preparation of capital accounts, distribution of profits amongst partners and change in the profit-sharing ratio of the existing partners along with preparation of Profit and Loss Account and Balance Sheet of the partnership firm.