Professional Documents
Culture Documents
IFRS EDITION
Prepared by
Coby Harmon
University of California, Santa Barbara
Westmont College
F-1
APPENDIX PREVIEW
In this appendix, we discuss reasons why businesses select
the partnership form of organization. We also explain the
major issues in accounting for partnerships.
Financial Accounting
IFRS 3rd Edition
Weygandt Kimmel Kieso
F-2
APPENDIX
Accounting for
Partnerships
LEARNING OBJECTIVES
After studying this chapter, you should be able to:
1. Identify the characteristics of the partnership form of business
organization.
2. Explain the accounting entries for the formation of a partnership.
3. Identify the bases for dividing net income or net loss.
4. Describe the form and content of partnership financial statements.
5. Explain the effects of the entries to record the liquidation of a
partnership.
F-3
Learning Objective
1
Identify the
characteristics of the
partnership form of
business organization.
Type of Business:
F-4
LO 1
Characteristics of Partnerships
ASSOCIATION OF INDIVIDUALS
Legal entity.
Accounting entity.
MUTUAL AGENCY
F-5
LO 1
Characteristics of Partnerships
LIMITED LIFE
UNLIMITED LIABILITY
F-6
LO 1
Characteristics of Partnerships
CO-OWNERSHIP OF PROPERTY
F-7
LO 1
Illustration F-2
Advantages and disadvantages of a partnership
F-8
LO 1
F-9
LO 1
Learning Objective 2
Explain the accounting entries
for the formation of a
partnership.
F-10
Illustration F-3
Book and fair values of assets invested
LO 2
Forming a Partnership
Illustration F-3
Book and fair values
of assets invested
8,000
Equipment
4,000
A. Rolfe, Capital
F-11
12,000
LO 2
Forming a Partnership
Illustration F-3
Book and fair values
of assets invested
9,000
Accounts Receivable
4,000
T. Shea, Capital
12,000
1,000
LO 2
Learning
Objective 3
Identify the bases
for dividing net
income or net
loss.
1. Debit each revenue account for its balance, and credit Income
Summary for total revenues. Debit Income Summary for total
expenses, and credit each expense account for its balance.
2. Debit Income Summary for its balance, and credit each partners
capital account for his or her share of net income. Or, credit
Income Summary, and debit each partners capital account for
his or her share of net loss.
3. Debit each partners capital account for the balance in that
partners drawing account, and credit each partners drawing
account for the same amount.
F-13
LO 3
F-14
LO 3
Illustration F-4
Partners capital and drawing accounts after closing
F-15
LO 3
F-16
Fixed ratio.
F-17
LO 3
Illustration F-5
Income statement with division of net income
F-18
LO 3
22,000
F-19
LO 3
Illustration F-6
Division of net incomeincome deficiency
F-20
LO 3
Learning Objective
4
Illustration F-7
Partners capital statement
F-21
LO 4
Illustration F-8
Equity section of a
partnership statement
of financial position
LO 4
Liquidation of a Partnership
Ends both the legal and economic life
of the entity.
Learning Objective 5
Explain the effects of the
entries to record the liquidation
of a partnership.
LO 5
Liquidation of a Partnership
Illustration: Ace Company is liquidated when its ledger shows
the assets, liabilities, and equity accounts are reported as follows:
Illustration F-9
Account balances prior to liquidation
F-24
LO 5
Liquidation of a Partnership
No Capital
Deficiency
8,000
LO 5
Liquidation of a Partnership
No Capital
Deficiency
F-26
7,500
5,000
2,500
LO 5
Liquidation of a Partnership
No Capital
Deficiency
F-27
LO 5
Liquidation of a Partnership
No Capital
Deficiency
R. Arnet, Capital
22,500
P. Carey, Capital
22,800
Illustration F-10
Ledger balances before
distribution of cash
49,000
LO 5
Liquidation of a Partnership
No Capital
Deficiency
Illustration F-11
Schedule of cash payments, no capital deficiency
F-29
LO 5
Liquidation of a Partnership
Capital
Deficiency
8,000
LO 5
Liquidation of a Partnership
Capital
Deficiency
F-31
LO 5
Liquidation of a Partnership
Capital
Deficiency
F-32
LO 5
Liquidation of a Partnership
Capital
Deficiency
Illustration F-12
Ledger balances
before distribution of
cash
Deficiency
PAYMENT OF DEFICIENCY
Cash 1,800
W. Eaton, Capital
F-33
1,800
LO 5
Liquidation of a Partnership
Capital
Deficiency
PAYMENT OF DEFICIENCY
Step 4 Record distribution of cash to the partners.
R. Arnet, Capital
6,000
P. Carey, Capital
11,800
Cash
F-34
Illustration F-13
Ledger balances after
paying capital deficiency
17,800
LO 5
Liquidation of a Partnership
Capital
Deficiency
Illustration F-12
Ledger balances
before distribution of
cash
Deficiency
NON-PAYMENT OF DEFICIENCY
R. Arnet, Capital (1,800 x 3/5) 1,080
P. Carey, Capital (1,800 x 2/5) 720
W. Eaton, Capital
1,800
F-35
LO 5
Liquidation of a Partnership
Capital
Deficiency
NON-PAYMENT OF DEFICIENCY
Step 4 Record distribution of cash to the partners.
R. Arnet, Capital
4,920
P. Carey, Capital
11,080
Cash
F-36
Illustration F-14
Ledger balances after
nonpayment of capital
deficiency
16,000
LO 5
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F-37