PARTNERSHIP

DEFINITION

A CONTRACT WHEREBY TWO OR MORE PERSONS CONTRIBUTE MONEY OR INDUSTRY TO A COMMON

FUND WITH THE INTENTION OF DIVIDING THE PROFITS AMONG THEMSELVES. (Art. 1767 Civil Code of the
Philippines)

-AN ASSOCIATION OF TWO OR MORE PERSONS WHO CO-OWN A BUSINESS FOR A PROFIT.

CHARACTERISTICS
1. Separate legal personality
2. Mutual agency
3. Limited life
4. Unlimited liability
5. Co-ownership of property
6. Co-ownership of profits

ADVANTAGES DISADVANTAGES
ease of formation and dissolution easily dissolved/limited life
unlimited liability unlimited liability
better management difficulty in transferring ownership
flexibility in decision making conflict among partners
greater capital compared to sole proprietorship lesser capital compared to corporation

ARTICLES OF CO-PARTNERSHIP
-this agreement is a framework which governs the formation, operations, dissolution and liquidation of the partnership.

CONTENTS:
1. Name and nature of the partnership.
2. Date on which the partnership contract takes effect and duration of such contract.
3. Names of partners, and partners’ investments.
4. Authority, rights and duties of each partner.
5. Accounting period to be applied, and accounting and auditing of partnership books.
6. Method of sharing profits and losses.
7. Provision of the arbitration of disputes and liquidation of the partnership.

KINDS OF PARTNERSHIP KINDS OF PARTNERS

Non-Trading Partnership Capitalist Partner
Trading Partnership Industrial Partner
General Partnership Capitalist- Industrial Partner
Limited Partnership General Partner
Universal Partnership of All Present Property Limited Partner
Universal Partnership of All Profits Nominal Partner
Particular Partnership Secret Partner
Silent Partner
 CONVERSION OF SOLE PROPRIETORSHIP INTO A PARTNERSHIP

Books of Sole Proprietorship

1. Adjust or revalue the assets of the sole proprietorship according to the agreement. Adjustments are made to the
Proprietor’s Capital account.
2. Close the books

Books of the Partnership

1. Record the investments of the Sole Proprietor.( at adjusted amounts)
2. Record the investments of other partners.

Example of Adjustments/Revaluation of Assets:

1. Merchandise Inventory per John’s book P100,000

Adjustment:
Merchandise Inventory is to be recorded at its fair value of P75,000.
Adjusting Entry:
John, Capital 25,000
Merchandise Inventory 25,000
To revalue merchandise inventory.

2. Accounts Receivable per John’s book P100,000

Allowance for Bad Debts 15,000
Adjustment:
10% of the Accounts Receivable is estimated to be uncollectible
Adjusting Entry:
Allowance for Bad Debts 5,000
John, Capital 5,000
To adjust bad debts allowance

EXERCISE 1-5

Books of Francis
1. Adjusting Entries
Oct 1 Francis, Capital 2,800
Allowance for Bad Debts
2,800
To adjust bad debts allowance

1 Landscaping Supplies 10,000

Francis, Capital 10,000
To revalue landscaping supplies

1 Francis Capital 100,000

Accumulated Depreciation-
Furniture and Equipment 100,000
To revalue furniture and equipment

2. Closing Entries
Oct 1 Allowance for Bad Debts 10,800
Accumulated Depreciation- 200,000
Furniture and Equipment
Accounts Payable 565,000
Francis, Capital 1,634,200
Cash 130,000
Accounts Receivable 720,000
Landscaping Supplies 550,000
Furniture and Equipment 1,000,000
To close the books of Francis.
BOOK OF PARTNERSHIP

Oct 1 Cash 130,000

Accounts Receivable 720,000
Landscaping Supplies 550,000
Furniture and Equipment 800,000
Allowance for Bad Debts 10,800
Accounts Payable 565,000
Francis, Capital 1,634,200
To record the investment of Francis

1 Cash 1,634,200
Pio, Capital 1,634,200
To record the investment of Pio