Introduction to Partnership Accounting
Sole Proprietorship – owned by one person
assume the profit and expensesService – oriented business – engages in rendering servicesMerchandising businesses – buy and sell goods for profitPartnership – composed of two or more persons to contribute to a common fund for aprofit that will be divided among themselvesMoney and property include: cash, investment in trading securities, trade andother receivables, prepaid expenses, PPEIndustry: service, labor, competenceCharacteristics of a partnership1.
mutual agency – all of them participate actively, partners act as agents of thepartnership, can attend meetings as a representative, signing of contracts2.
limited life – dissolution upon death, insanity, mental incapability, etc. of apartner, easily ended/terminated, change of ownership structure3.
unlimited liability – the liabilities are extended to the personal assets andproperties (general partner) ; liability to partnership debts (limited partner) ; allpartnerships must have at least one general partner4.
co-ownership of property5.
co-ownership of profit6.
legal entity – business entity principle
partners are distinct from the partnershipAdvantage of a partnership1.
easy to form and dissolve2.
greater amount of capital3.
freedom and flexibility in decision-making4.
reliable from the point of view of creditorsDisadvantage of a partnership1.
unlimited liability of a partnership2.
lack of business continuity3.
difficulty in transferring ownership interest (approval of all partners)4.
limited amount of capital5.
likelihood of dissension and disagreementKinds of partnership1.
according to activitya.
service – rendering servicesb.
merchandising or trading – buy and sell of goodsc.
manufacturing – production of goods2.
according to liabilitya.
general – liable pro rata – all partners are general partners.b.
limited – one limited partner makes the partnership a limited partnership3.
according to object