Chapter 1: Special Transactions

Essay:

1. Contrast Partnership and Sole Proprietorship

a. Partnership is owned by two or more individuals, while a sole proprietorship is owned
by one individual.
2. Contrast Partnership and Corporation
a. Partnership is created by agreement between the partners, while a corporation is
created by the operation of law.
3. Contrast General Partnership and Limited Partnership
a. General partnership- all partners individually liable
b. Limited partnership- at least one partner is personally liable. It includes at least one
general partner who maintains unlimited liability.
4. Discuss the major considerations in the accounting for the equity of a partnership
a. The major considerations in the accounting for the equity of a partnership are the
following:
 Formation-accounting for initial investments to the partnership.
 Operations-division of profits or losses.
 Dissolution- admission of a new partner and withdrawal, retirement, or death
of a partner.
 Liquidation-winding-up of affairs
5. Discuss the different partner’s ledger accounts.
a. The different partner’s ledger accounts are capital accounts, drawing accounts, and
receivable from or payable to a partner.
 Capital accounts- real account
Debit - permanent withdrawals of capital, share in losses, and debit balance of
drawings account.
Credit- initial investment, additional investments, and share in profits.
 Drawing accounts- nominal account (closed to capital account)
Debit- temporary withdrawals during the period, temporary funds held to be
remitted to the partnership.
Credit- recurring reimbursement costs paid by the partner.
 Receivable from/Payable to a partner
Receivable from the partner is the loan extended to partnership while Payable
to a partner is a loan obtained by the partnership from a partner.