Actpaco Reviewer
Introduction to Partnership Accounting
Sole Proprietorship – owned by one person assume the profit and expenses Service – oriented business – engages in rendering services Merchandising businesses – buy and sell goods for profit Partnership – composed of two or more persons to contribute to a common fund for a profit that will be divided among themselves Money and property include: cash, investment in trading securities, trade and other receivables, prepaid expenses, PPE Industry: service, labor, competence Characteristics of a partnership 1. mutual agency – all of them participate actively, partners act as agents of the partnership, can attend meetings as a representative, signing of contracts 2. limited life – dissolution upon death, insanity, mental incapability, etc. of a partner, easily ended/terminated, change of ownership structure 3. unlimited liability – the liabilities are extended to the personal assets and properties (general partner) ; liability to partnership debts (limited partner) ; all partnerships must have at least one general partner 4. co-ownership of property 5. co-ownership of profit 6. legal entity – business entity principle partners are distinct from the partnership Advantage of a partnership 1. easy to form and dissolve 2. greater amount of capital 3. freedom and flexibility in decision-making 4. better management 5. reliable from the point of view of creditors Disadvantage of a partnership 1. unlimited liability of a partnership 2. lack of business continuity 3. difficulty in transferring ownership interest (approval of all partners) 4. limited amount of capital 5. likelihood of dissension and disagreement Kinds of partnership 1. according to activity a. service – rendering services b. merchandising or trading – buy and sell of goods c. manufacturing – production of goods 2. according to liability a. general – liable pro rata – all partners are general partners. b. limited – one limited partner makes the partnership a limited
Sole Proprietorship – owned by one person assume the profit and expenses Service – oriented business – engages in rendering services Merchandising businesses – buy and sell goods for profit Partnership – composed of two or more persons to contribute to a common fund for a profit that will be divided among themselves Money and property include: cash, investment in trading securities, trade and other receivables, prepaid expenses, PPE Industry: service, labor, competence Characteristics of a partnership 1. mutual agency – all of them participate actively, partners act as agents of the partnership, can attend meetings as a representative, signing of contracts 2. limited life – dissolution upon death, insanity, mental incapability, etc. of a partner, easily ended/terminated, change of ownership structure 3. unlimited liability – the liabilities are extended to the personal assets and properties (general partner) ; liability to partnership debts (limited partner) ; all partnerships must have at least one general partner 4. co-ownership of property 5. co-ownership of profit 6. legal entity – business entity principle partners are distinct from the partnership Advantage of a partnership 1. easy to form and dissolve 2. greater amount of capital 3. freedom and flexibility in decision-making 4. better management 5. reliable from the point of view of creditors Disadvantage of a partnership 1. unlimited liability of a partnership 2. lack of business continuity 3. difficulty in transferring ownership interest (approval of all partners) 4. limited amount of capital 5. likelihood of dissension and disagreement Kinds of partnership 1. according to activity a. service – rendering services b. merchandising or trading – buy and sell of goods c. manufacturing – production of goods 2. according to liability a. general – liable pro rata – all partners are general partners. b. limited – one limited partner makes the partnership a limited