3.

PARTNERSHIP OPERATIONS
Essentially the same as accounting for the operations of a sole proprietorship

CLOSING ENTRIES
REVENUE & NOMINAL ACCOUNTS with credit balances are credited
INCOME SUMMARY is debited
REVENUE & NOMINAL ACCOUNTS with debit balances are credited
INCOME SUMMARY, that represents profit/loss, is transferred to drawing accounts or
directly to capital accounts of partners.
DRAWING ACCOUNT of each partner is transferred to their capital account

RULES FOR DIVIDING PROFITS

AS TO CAPITALIST PARTNERS
a. Division of Profits
1. in accordance with agreement
2. in absence, it is in accordance with capital contributions
b. Division of Losses
1. in accordance with agreement
2. if only division of profits is agreed upon, losses will be divided the same as the
agreement on profit division
3. in absence, it is in accordance with capital contributions
AS TO INDUSTRIAL PARTNERS
a. Division of Profits
1. 1in accordance with agreement
2. in absence, industrial partner shall receive just & equitable share, and capitalist
partners shall receive in accordance with capital contributions
b. Division of Losses
1. in accordance with agreement
2. in absence, capitalist-industrial partner shall have no share in losses, but his
character as capitalist will share in proportion to capital contribution
METHODS OF DISTRIBUTION
1. EQUALLY
2. ARBITRARY RATIO (percentage, decimal, fraction, ratio)
3. CAPITAL RATIO (original, beginning, ending, average)
4. INTEREST ON CAPITAL & BALANCE ON AGREED RATIO
5. SALARY ALLOWANCES TO PARTNERS & BALANCE ON AGREED RATIO
6. BONUS TO MANAGING PARTNER & BALANCE ON AGREED RATIO
7. INTEREST ON CAPITAL, SALARIES TO PARTNERS, BONUS TO MANAGING PARTNER, &
BALANCE ON AGREED RATIO