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PARTNERSHIP

DEFINITION
A CONTRACT WHEREBY TWO OR MORE PERSONS CONTRIBUTE MONEY OR INDUSTRY TO A COMMON
FUND WITH THE INTENTION OF DIVIDING THE PROFITS AMONG THEMSELVES. (Art. 1767 Civil Code of the
Philippines)
-AN ASSOCIATION OF TWO OR MORE PERSONS WHO CO-OWN A BUSINESS FOR A PROFIT.
CHARACTERISTICS
1.

Separate legal personality

2.

Mutual agency

3.

Limited life

4.

Unlimited liability

5.

Co-ownership of property

6.

Co-ownership of profits

ADVANTAGES
ease of formation and dissolution
unlimited liability
better management
flexibility in decision making
greater capital compared to sole proprietorship

DISADVANTAGES
easily dissolved/limited life
unlimited liability
difficulty in transferring ownership
conflict among partners
lesser capital compared to corporation

ARTICLES OF CO-PARTNERSHIP
-this agreement is a framework which governs the formation, operations, dissolution and liquidation of the partnership.
CONTENTS:
1.

Name and nature of the partnership.

2.

Date on which the partnership contract takes effect and duration of such contract.

3.

Names of partners, and partners investments.

4.

Authority, rights and duties of each partner.

5.

Accounting period to be applied, and accounting and auditing of partnership books.

6.

Method of sharing profits and losses.

7.

Provision of the arbitration of disputes and liquidation of the partnership.

KINDS OF PARTNERSHIP
Non-Trading Partnership
Trading Partnership
General Partnership
Limited Partnership
Universal Partnership of All Present Property
Universal Partnership of All Profits
Particular Partnership

KINDS OF PARTNERS
Capitalist Partner
Industrial Partner
Capitalist- Industrial Partner
General Partner
Limited Partner
Nominal Partner
Secret Partner
Silent Partner

CONVERSION OF SOLE PROPRIETORSHIP INTO A PARTNERSHIP


Books of Sole Proprietorship
1. Adjust or revalue the assets of the sole proprietorship according to the agreement. Adjustments are made to the
Proprietors Capital account.
2. Close the books
Books of the Partnership
1. Record the investments of the Sole Proprietor.( at adjusted amounts)
2. Record the investments of other partners.
Example of Adjustments/Revaluation of Assets:
1. Merchandise Inventory per Johns book

P100,000

Adjustment:
Merchandise Inventory is to be recorded at its fair value of P75,000.
Adjusting Entry:
John, Capital
25,000
Merchandise Inventory
25,000
To revalue merchandise inventory.
2. Accounts Receivable per Johns book
P100,000
Allowance for Bad Debts
15,000
Adjustment:
10% of the Accounts Receivable is estimated to be uncollectible
Adjusting Entry:
Allowance for Bad Debts
5,000
John, Capital
To adjust bad debts allowance

5,000

EXERCISE 1-5
Books of Francis
1. Adjusting Entries
Oct 1
Francis, Capital

2,800
Allowance for Bad Debts
2,800

To adjust bad debts allowance


1

Landscaping Supplies

10,000

Francis, Capital
To revalue landscaping supplies
1

Francis Capital

10,000
100,000

Accumulated DepreciationFurniture and Equipment


To revalue furniture and equipment
2. Closing Entries
Oct 1
Allowance for Bad Debts
Accumulated DepreciationFurniture and Equipment
Accounts Payable
Francis, Capital
Cash
Accounts Receivable
Landscaping Supplies
Furniture and Equipment
To close the books of Francis.

100,000

10,800
200,000
565,000
1,634,200
130,000
720,000
550,000
1,000,000

BOOK OF PARTNERSHIP
Oct 1

Cash
Accounts Receivable
Landscaping Supplies
Furniture and Equipment
Allowance for Bad Debts
Accounts Payable
Francis, Capital
To record the investment of Francis
1

Cash
Pio, Capital
To record the investment of Pio

130,000
720,000
550,000
800,000
10,800
565,000
1,634,200
1,634,200
1,634,200

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