Quality Teaching

Specialised Coaching for Commerce

Knowledge based result oriented coaching

Contact : 9323242492

Partnership Final Accounts

* Partnership is a business organisation where two or more persons come together to carry on a business.

* The persons carrying on business under partnership are called as Partners. * As per sec.4 of Indian Partnership Act 1932 Partnership firm defined as. " Partnership is the relation between persons who have agreed to share profits of a business carried on by all any of them acting for all." * Partnership is a result of agreement, without agreement partnership can not be formed. Agreement can be in oral or written form.

* Written agreement is called as "Partnership Deed" or " Articles of Partnership" . Registration of Partnership firm is not compulsory but in the state of Maharashtra it is * compulsory. To form a business minimum two members required and maximum 10 is case of banking business and 20 for non-banking business. * Liability of partners is unlimited except minor partner * In partnership firm every partner acts as an agent as well as principal. There are various types of partners e.g. Active Partner, Sleeping Partner, Nominal Partner, * Minor Partner, Partner in Profits Only & Partner by Estoppel * Accounting of Partnership Firm Partnership accounting is similar like an accounting of Sole Trading business, only need to take care of (A) Partners' Capital Account and (B) Sharing of profits of business between them. A) Methods of Capital Accounts An amount contributed by partners in partnership firm is called as partners' capital. Partner can contribute the amount by way of cash or in form of kind. There are two ways or methods of doing accounting of Partners' capital i.e. 1) Fixed Capital Method 2) Fluctuating Capital Method 1) Fixed Capital Method Under this method amount of capital of partners remain constant every year. Only when partner introduced additional capital of withdraw part of his capital from business then only balance in capital account can be changed. Therefore all other transactions which affects partners' capital are applied to Partner's Current Account. Other transactions includes . a) Drawings in form of cash or kind b) Interest on Capital c) Interest on Drawings d) Salary or commission to Partners e) Distribution of profit or loss of the firm.

Quality Teaching
Specialised Coaching for Commerce

Knowledge based result oriented coaching

Contact : 9323242492

Journal Entries: a)Cash or goods taken over by Partner for personal use (Drawings) Drawings A/c .. Dr. To Cash / Goods taken by Partner's A/c [Being cash/goods withdrawn by partners] ======================================================== Partner's Current A/c .Dr. To Drawings A/c [Being balance in Drawings A/c transferred to Current A/c] ========================================================

b)Interest allowed on Partner's capital Interest on Capital A/c .. Dr. To Partner's Current A/c [Being interest on capital credited to Current A/c] ======================================================== Profit & Loss A/c .... Dr. To Interest on Capital A/c [Being interest on capital transferred to Profit & Loss A/c] ========================================================

c)Interest charged on Partner's Drawings Partner's Current A/c .... Dr. To Interest on Drawings A/c [Being interest on capital credited to Current A/c] ======================================================== Interest on Drawings A/c .. Dr. To Profit & Loss A/c [Being interest on capital transferred to Profit & Loss A/c] ========================================================

d)Salary / Commission allowed Partners Salary / Commission A/c ... Dr. To Partner's Current A/c [Being salary / commission credited to Current A/c] ======================================================== Profit & Loss A/c .... Dr. To Salary / Commission A/c [Being salary / commission transferred to Profit & Loss A/c] ========================================================

Quality Teaching
Specialised Coaching for Commerce

Knowledge based result oriented coaching

Contact : 9323242492

e) Distribution of Net Profit Profit & Loss A/c .... Dr. To Partner's Current A/c [Being Net Profit transferred to Current A/c] ========================================================

f) Distribution of Net Loss Partner's Current A/c .... Dr. To Profit & Loss A/c [Being Net Profit transferred to Current A/c] ========================================================

Note: After passing all the entries, partner's current a/c can show either debit balance or credit balance. Debit balance transferred to Asset side of Balance sheet and Credit balance transferred to Liability side of Balance sheet .

2) Fluctuating Capital Method Under this method amount of capital changes every year. This is because all above transactions directly debited or credited to Partner's Capital Account.

B) Sharing of profits of business between Partners In partnership firm, profits of a firm is distributed to partners in their pre-defined profit sharing ratio, but in case of specific ratio is not given then profit is distributed in equal proportion.

In Partnership Final Accounts there are two main accounts and one statement need to be prepared. i.e. 1) Trading Account 2) Profit & Loss Account 3) Balance Sheet Proforma of Trading Account Trading Account For the year ended Amount Particulars xxx By Sales xxx Less: Sales Return (xxx) xxx By Goods Destroyed by fire / xxx theft xxx By Goods withdrawn for personal use ( Drawings)

Particulars To Opening Stock To Purchases Less: Purchase Return To Wages To Wages & Salaries

Amount xxx (xxx) xxx xxx

Quality Teaching
Specialised Coaching for Commerce

Knowledge based result oriented coaching By Goods withdrawn for personal use ( Drawings) By Goods distributed as free sample By Closing Stock

Contact : 9323242492
xxx xxx xxx

To Freight To Carriage Inward To Octroi To Import Duty To Customs Duty To Dock Charges To Works Manager Salary To Power, Fuel, Oil To Coal, Gas, Water To Royalty To Factory Rent To Factory Insurance To Motive Power To Heating & lighting To Trade Expenses

xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx

By Gross Loss c/d (Balancing Figure)

xxx

To Gross Profit c/d (Balancing Figure)

xxx

xxxx

xxxx

Proforma of Profit & Loss Account Profit & Loss Account For the year ended Amount Particulars xxx By Gross Profit b/d By Interest Received xxx By Discount Received xxx By Commission Received xxx By Dividend Received xxx By Rent Received xxx By Other Receipts xxx By Profit on Sale of Assets xxx By Interest on Investment xxx By Interest on Drawings xxx xxx xxx xxx By Net Loss c/d xxx X's Capital / Current A/c xxx Y's Capital / Current A/c xxx Z's Capital / Current A/c xxx xxx xxx xxx

Particulars To Gross Loss b/d To Salaries To Salaries & Wages To Unproductive Wages To Office Expenses To General Expenses To Sundry Expenses To Printing & Stationery To Postage & Telegram To Telephone Charges To Electricity Charges To Legal Charges To Audit Fees To Bank Charges To Interest Paid To Warehouse Rent To Rent Rates & Taxes To Insurance To Travelling Expenses To Discount Allowed To Advertisement

Amount xxx xxx xxx xxx xxx xxx

xxx xxx xxx

xxx

Quality Teaching
Specialised Coaching for Commerce

Knowledge based result oriented coaching

Contact : 9323242492

To Export Duty To Carriage Outward To Packing Charges To Conveyance To Bad Debts Add: New RDD Add: Bad Debts Less: Old RDD To Provident Fund Contribution To Repairs & Renewals To Interest on Capital To Salary to Partners To Commission to Partners To Loss on Sale of Asset To Loss on Sale of Asset To Net Profit c/d X's Capital / Current A/c Y's Capital / Current A/c Z's Capital / Current A/c

xxx xxx xxx xxx xxx xxx xxx (xxx)

xxx xxx xxx xxx xxx xxx

xxx xxx xxx

xxx xxxx xxxx

Proforma of Balance Sheet BALANCESHEET AS ON . Amount Assets Goodwill xxx Land & Building xxx Freehold Property xxx Leasehold Property Plant & Machinery Furniture & Fixtures xxx Patents xxx Copy Rights xxx Trade Mark Motor Vehicles xxx Investments xxx Provident Fund Investments xxx Interest accrued on Investment xxx Loans & Advances xxx Loose Tools xxx Sundry Debtors xxx Bills Receivable xxx Closing Stock xxx Stock of Stationery xxx Cash at Bank

Liabilities Partner's Capital A/cs X Y Z Partner's Current A/cs X Y Z Sundry Creditors Bills Payable Bank Overdraft Bank Loan Partner's Loan Other Loans Outstanding Expenses Pre -received Incomes (Income received in advance) Reserved Funds

Amount xxx xxx xxx xxx xxx xxx

xxx xxx xxx

xxx

Quality Teaching
Specialised Coaching for Commerce

Knowledge based result oriented coaching

Contact : 9323242492

Provident Fund

xxx Cash in Hand Prepaid Expenses Outstanding Incomes Insurance Claim Receivable Partner's Current A/c (Dr. Bal.)

xxxx

xxxx

Adjustments: 1) Closing Stock 2) Outstanding Expenses 3) Prepaid Expenses 4) Pre-received Income / Income received in advance 5) Income Receivable / Outstanding Income 6) Bad Debts 7) RDD & Bad Debts 8) Reserve for Discount on Debtors 9) Reserve for Discount on Creditors 10) Depreciation 11) Interest on Capital 12) Interest on Drawings 13) Interest on Loans taken 14) Interest on Loans given / Investments 15) Goods lost by fire / theft.(insured / uninsured) 16) Goods distributed as free samples. 17) Goods withdrawn by Partner (Drawings) 18) Unrecorded Purchases 19) Unrecorded Sales 20) Bill Receivable Dishonoured 21) Bill Payable Dishonoured 22) Deferred Expenses 23) Capital Expenditure included in Revenue Expenditure & vice versa 24) Capital Receipts included in Revenue Receipts & vice versa 25) Commission / Salary to Partner