PARTNERSHIP ACCOUNTING

The accounting for a partnership is essentially the same as is used for a sole
proprietorship, except that there are more owners. In essence, a separate account tracks
each partner's investment, distributions, and share of gains and losses.

Overview of the Partnership Structure

A partnership is a type of business organizational structure where the owners have

unlimited personal liability for the business. The owners share in the profits (and losses)
generated by the business. There may also be limited partners in the business who do not
engage in day-to-day decision making, and whose losses are limited to the amount of their
investments in it; in this case, a general partner runs the business on a day-to-day basis.

Partnerships are a common form of organizational structure in businesses that are

oriented toward personal services, such as law firms, auditors, and landscaping.

Accounting for a Partnership

There are several distinct transactions associated with a partnership that are not found in
other types of business organization. These transactions are:

• Contribution of funds. When a partner invests funds in a partnership, the

transaction involves a debit to the cash account and a credit to a separate capital
account. A capital account records the balance of the investments from and
distributions to a partner. To avoid the commingling of information, it is customary
to have a separate capital account for each partner.

• Contribution of other than funds. When a partner invests some other asset in a
partnership, the transaction involves a debit to whatever asset account most closely
reflects the nature of the contribution, and a credit to the partner's capital account.
The valuation assigned to this transaction is the market value of the contributed
asset.

Source: https://www.accountingtools.com/articles/2017/5/5/partnership-accounting