ACCOUNTING FOR PARTNERSHIP

✓ Two or more persons bind themselves to contribute money, property, or industry to a

common fund, with the intention of dividing the profit among themselves.

✓ An association of two or more persons to carry on, as co-owners, a business for profit.

✓ It has a juridical personality separate and distinct from that of each of the partners.

✓ Partnerships resemble sole proprietorships, except that there are two or more owners of the
business and each owner is called partner.

CHARACTERISTICS OF PARTNERSHIP

✓ Mutual Contribution. There cannot be a partnership without contribution of money,

property or industry to a common fund.

✓ Division of Profits or Losses. The essence of partnership is that each partner must share in
the profits or losses of the venture.

✓ Co-Ownership of Contributed Assets. All assets contributed into the partnership are
owned by the partnership by virtue of its separate and distinct juridical personality.

✓ Mutual Agency. Any partner can bind the other partners to a contract if he is acting within
his express or implied authority.

✓ Limited Life. A partnership has a limited life. It may be dissolved by the admission, death,
insolvency, incapacity, withdrawal of a partner or expiration of the term specified in the
partnership agreement.

✓ Unlimited Liability. All partners (except limited partners), including industrial partners, are
personally liable for all debts incurred by the partnership. if the partnership can not settle
its obligations, creditors’ claims will be satisfied from the personal assets of the partners
without prejudice to the rights of the separate creditors of the partners.

✓ Income Taxes. Partnerships, except general professional partnerships, are subject to tax at
the rate of 30% (per R.A. No. 9337) of taxable income.

✓ Partners’ Equity Account. Accounting for partnerships are much like accounting for sole
proprietorships.

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DANNAH DIOVINDA T. MAGAHIS, CPA
PARTNERSHIP DISTINGUISHED FROM CORPORATION

PARTNERSHIP CORPORATION
Manner of Creation A partnership is created by A corporation is created by
mere agreement of the operation of law.
partners.
Number of Persons Two or more persons may In a corporation, at least five
form a partnership persons, not exceeding
fifteen
Commencement of Juridical Juridical personality Juridical personality
Personality commences from the commences from the
execution of the articles of issuance of certificate of
partnership incorporation by the
Securities and Exchange
Commission
Management Every partner is an agent of Management is vested on the
the partnership if the Board of Directors
partners did not appoint a
managing partner
Extent of Liability Each of the partners except a Stockholders are liable only
limited partner is liable to the to the extent of their interest
extent of his personal assets or investment in the
corporation
Right of Succession There is no right of There is right of succession
succession

Terms of Existence For any period stipulated by Not to exceed fifty (50) years
the partners but subject to extension

CLASSIFICATION OF PARTNERSHIPS

✓ According to object

o Universal partnership of all present property

o Universal partnership of profits

o Particular partnership

✓ According to liability

o General

o Limited

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DANNAH DIOVINDA T. MAGAHIS, CPA
 ✓ According to duration

o Partnership with a fixed term or for a particular undertaking

o Partnership at will

✓ According to purpose

o Commercial or trading partnership

o Professional or non-trading partnership

✓ According to legality of existence

o De jure partnership

o De facto partnership

KINDS OF PARTNERS

✓ General partner. One who is liable to the extent of his separate property after all the assets
of the partnership are exhausted.

✓ Limited partner. One who is liable only to the extent of his capital contribution. He is not
allowed to contribute industry or services only.

✓ Capitalist partner. One who contributes money or property to the common fund of the
partnership.

✓ Industrial partner. One who contributes his knowledge or personal service to the
partnership.

✓ Managing partner. One whom the partners has appointed as manager of the partnership.

✓ Liquidating partner. One who is designated to wind up or settle the affairs of the
partnership after dissolution.

✓ Dormant partner. One who does not take active part in the business of the partnership and
is not known as a partner.

✓ Silent partner. One who does not take active part in the business of the partnership though
may be known as a partner.

✓ Secret partner. One who takes active part in the business but is not known to be a partner
by outside parties.

✓ Nominal partner or partner by estoppel. One who is actually not a partner but who
represents himself as one.

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DANNAH DIOVINDA T. MAGAHIS, CPA
ARTICLES OF PARTNERSHIP

✓ A partnership may be constituted orally or in writing. In the latter case, partnership

agreements are embodied in the Articles of Partnership.

✓ The following essential provisions may be contained in the agreement

1. The partnership name, nature, purpose and location;

2. The names, citizenship and residences of the partners;

3. The date of formation and the duration of the partnership;

4. The capital contribution of each partner, the procedure for valuing non-cash
investments, treatment of excess contribution (as capital or as loan) and the
penalties for a partner's failure to invest and maintain the agreed capital;

5. The rights and duties of each partner;

6. The accounting period to be adopted, the nature of accounting records, financial

statements and audits by independent public accountants;

7. The method of sharing profit or loss, frequency of income measurement and

distribution, including any provisions for the recognition of differences in
contributions;

8. The drawings or salaries to be allowed to partners;

9. The provision for arbitration of disputes, dissolution, and liquidation.

ACCOUNTING FOR PARTNERSHIP

Partner’s Capital Account

Debit Credit
1. Permanent Withdrawal 1. Original investment

2. Debit balance of drawing account 2. Additional investment

at the end of the period
3. Credit balance of drawing account
at the end of the period

Partner’s Drawing Account

Debit Credit
1. Temporary Withdrawal 1. Share in profit (this may be credited
2. Share in loss (this may be debited directly to Capital)
directly to Capital)

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DANNAH DIOVINDA T. MAGAHIS, CPA
REVIEW QUESTION

1. Define partnership.
2. What are the essential characteristics of a partnership.
3. Identify three advantages of a partnership in comparison with a corporation.
4. Differentiate a partnership from a corporation.
5. Define articles of partnership. Name seven important provisions to be incorporated in this
instrument.

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DANNAH DIOVINDA T. MAGAHIS, CPA