Accounting For Partnership Summary of Important Rules

 Initial investment
o Cash
o property
o industry
 Valuation of Initial contribution/ investment
o Cash - Face value
o Property - Agreed value ( if there is no agreed value, Fair
Market Value)
o Industry-memorandum entry only
 

 Plurality of Capital and Drawing accounts

o Transactions that decreases the capital account
 Permanent withdrawal 
 share in partnership loss
o Transactions that increases the capital account
 Original and additional investments
 Share in partnership profits
o Drawing account is closed to  capital account at the end of the
period
 

 Sole Proprietor and Individual Formed a Partnership

o Partner may transfer his assets and liabilities at an agreed
values (or at FMV if there is no agreed value)
o partnership may either:
 use the books of the sole proprietor, or
 open new set of books
 

 Use of existing book of the sole proprietor

o adjust the books of the sole proprietor to bring account
balances to agreed values
 Helpful rules to adjust the net asset
1. debit asset and credit capital for increase in asset
values
 2. debit capital and credit asset for decrease in asset
values
3. debit capital and credit liabilities for increase in
liability balances
4. debit liabilities and credit capital for decrease in
liability balance
5. debit contra asset account and credit capital for
increase in asset values
6. debit capital and credit contra asset account for
decrease in asset values
o Record the investment of the other partner/s
 

 Partnership will open new set of books

o record the investment at an agreed values (the entries to adjust
and close the accounts are made in the separate books the
proprietor)