Partnership

Accounting
Dr. Reham Kamal Darwish , PhD
Assistant professor – Accounting Department
Faculty of Business, Economics and Information system
Misr University for Science and Technology

Fall – 2024/2025
 Fall 2024- 2025
Partnership Accounting – ACC 201 E
Tutorials Timetable
Days 11.00-12.00 2.00-3.00
Sunday T. A Sohaila Samy
308 R SS
Monday T.A Hoda Hamdy G1
320 TH SS
Tuesday T.A Basant Tarek G2
320 TH SS
Wednesday T.A Basant Tarek T.A Marwa Salem G3
310 R SS 319 TH SS
Thursday T.A Hoda Hamdy
312 R SS
 Course Preview

Ownership changes
1 An Introduction to partnership
5
Part 1: Partner
Chapter Chapter
Admission

Partnership Formation and Ownership changes

2 Operation Part I: part 2: Partner 6
Chapter without revaluation Withdrawals Chapter
.

Partnership Formation and Liquidation of a

3 Operation Part II: 7
partnership
Chapter With revaluation Chapter

4 Division of Profit and loss Previous Exams

8
Chapter Chapter
Lecture One
 Learning Objectives:
By the end of this chapter, you should know the
following:
1.1 Types of Business organizations form.
Chapter 1: 1.2 Definition of Partnership.

An Introduction to partnership
1.3 Types of partners.
1.4 Types of partnerships.
1.5 Characteristics of Partnership.
1.6 partnerships Advantages and Disadvantages.
1.7 Partnership Agreement.
1.1 Types of Business organizations form. Three forms of business organizations
from business activity's view.
In Accounting we can classify the business organizations
into two main type as follows:
1. From Business Activity’s View. Service Merchandising Manufacturing
companies companies companies
Business entities can be grouped by the type of business
perform services purchase goods buy materials,
activities such as service companies, merchandising
for a fee. This that are ready for convert them into
companies, and manufacturing companies. Any of these group includes sale and then sell products, and then
activities can be performed by companies using any of accounting firms, them to customers. sell the products to
the three forms of business organizations. law firms, and Merchandising other companies or
accountants, companies include to the final
bankers, doctors, clothing stores, consumers.
All these companies produce financial statements as the and supermarkets. Manufacturing
product of their accounting process. These financial companies include
steel mills, auto
statements provide relevant financial information both to
manufacturers,
those inside the company—management—and to those and clothing
outside the company—creditors, stockholders, and other manufacturers.
interested parties.
2. From Ownership View:
We can classify the business organization according to Three forms of business organization
the number of owners into three forms of businesses: from ownership view is classified to :
proprietorships, partnerships, and corporations. Thus,
for accounting purposes, all three business forms are
separate from other business entities and from their
owner(s). 1 Sole proprietorship company

2 Partnership Company

3 Corporation Company
 Comparison between Three Types of Company
Ownership View
Description Sole proprietorship Company Partnership Company Corporation Company
(Owner) (Partner) (Shareholder)
Definition is a firm owned by one individual is an association owned by two or is a business incorporated under
and often managed by that same more persons associated as partners the laws of a state and owned by
person. for profit. Often the same people a few stockholders or thousands
who own the business also manage of stockholders. Stockholders do
the business. not directly manage the
corporation. They elect a board
of directors to represent their
interests. The board of directors
selects the officers of the
corporation,
Examples include physicians, lawyers, such as dentists, physicians, and Almost all large businesses and
electricians, and other people in many CPA firms, are partnerships. many small businesses such as
business for themselves. Pepsi, Vodafone.
Description Sole proprietorship Company Partnership Company Corporation Company
(Owner) (Partner) (Shareholder)

Advantages 1. Business is simple to set up. [Link] is relatively easy to set A corporation has a separate legal
up. status it’s able to raise large sums of
2. Decision making is clear. capital through issuing bonds and
2. more management skills are stocks.
3. Earning is taxed only once as
available two heads are better than
personal income. one.
3. earnings are taxed only as the
personal income of the partners.

Disadvantages [Link] owner has unlimited liability. 1. there is unlimited liability for the 1. Corporation income taxed twice
partners. as corporate profit and on
[Link] owner makes the decisions. 2. decision making can be personal income dividends.
complicated. 2. There are great possibilities for
3. business dies with owner.
management disagreement.
[Link] company has a limited to
raise capital. 3. There is possible conflict and
goals between the owners of the
corporation.
1.2 Partnership Definition:
1.3 Types of partners:
Partnership can be defined as :
An association of two or more persons to
carry on as co-owners a business for profit.
Partner: It’s the owner of the partnership.
General Partner
1

Types of Partners

2 Limited Partner
 Comparison between two types of Partners 1.4 Types of partnership:

There is a different types of partnership divided into:

Description General Partner Limited Partner
Definition
1
Partners who have Partners whose liability
unlimited liability for the debts of the General Partnership
for the debts of the firm is limited to their
firm and his fully investment in the firm.
responsible for the his responsibilities is
company, we can limited to his
use his own money contribution in the
to pay off the
company debts.
firm we can't use his
personal money under
Limited Partnership
2
any conditions.

Limited liability partnership 3

Description General Partnership Limited Partnership Limited Liability
Partnership
Definition A partnership in which all members A partnership in which at least one or more Each partner has unlimited
are General Partners only , and all general partners have unlimited liability, liabilities for his own activity but
partners have mutual Agency. and one or more partners have limited not for the actions of other
liability for the obligations of the firm. partners.
Characteristics • Companies contains two or • Includes both the general and limited • All the partners have limited
more owners to run a business. partners. liability. Each partner is
• In this partnership, each partner •The general partner has unlimited liability, guarded against other partners’
represents the firm with equal manages the business and the other limited legal and financial mistakes.
rights. partners.
• All partners can participate in • Limited partners have limited control over
management activities, decision the business (limited to their investment).
making, •They are not associated with the everyday
• Have the right to control the operations of the firm.
business. Similarly, profits, • The limited partners only invest and take a
debts, and liabilities are equally profit share.
shared and divided equally. • They do not have any interest in
• If one partner is sued, all the participating in management or decision
other partners are considered making.
accountable. • This non-involvement means they do not
• The creditor or court will hold have the right to compensate the
the partner’s personal assets. partnership losses.
 1.5 Partnership characteristics:
Practicing accountants are frequently asked to advise clients regarding the formation
of a business. Therefore, it is important for accounting students to understand the
basic characteristics of a partnership and the related accounting implications.

01 02 03 04
Unlimited Limited Mutual Ease of formation
liability Life Agency and decision
making:

05 06 08
05 06
Single
Legal Entity
Taxation
 Unlimited Mutual Agency Ease of formation Single Taxation Legal Entity
Limited Life:
Liabilities:
• Partnership easy to • A partnership must • Partnership is a legal
• Each partner is • A partnership may • Mutual agency file an information entity. A partnership
form by two
personally and end voluntarily at means that each tax return showing can own property
partners and no
individually liable any time through partner acts on partnership net (land, buildings,
needs for more
for all partnership the acceptance of behalf of the income and each equipment) and can
government
liabilities. a new partner or partnership when partner’s share of sue or be sued.
restrictions.
• Creditors’ claims the withdrawal of engaging in that net income. • A partnership is also
attach first to a partner. partnership • Each partner’s an accounting
partnership assets. • It may be ended business. share is taxable at entity. Thus, the
involuntarily by personal tax rates. personal assets,
• If these are
Single taxation liabilities, and
insufficient, the the death or
means the transactions of the
claims then attach incapacity of a
government deducts partners are
to the personal partner.
tax once from net excluded from the
resources of any income accounting records
partner. of the partnership.
 1.6:Partnership Advantages and Disadvantages:
Generally, we can classify the partnership characteristics to advantages and
disadvantages as follows:

Advantages Disadvantages
Legal Entity Mutual Agency

Single Limited
Taxation Life

05 Ease of 06 08
formation Unlimited
and decision liability
making
1.7 Partnership Agreement: o Procedures governing the payment of receipt of interest
on loans among partners.
A partnership begins with a written agreement. A written
o Salaries to be accrued to partners.
agreement is better because it provides a permanent o Withdrawals of capital to be allowed by each partner
record of the terms of the partnership, and it should and the determination of what constitutes excess
withdrawals.
contain the following: o Procedures governing the voluntary withdrawal,
disability, death, or divorce of a partner and the
o Partnership name and address.
determination of the procedures for valuing the
o Partners’ names and addresses.
partner’s interest in the partnership.
o Effective date of partnership.
o The date when the profits and losses are divided, and the
o A description of the general business purpose and the
date of partnership books are closed.
limited duration of such purpose,
o Powers and duties of partners.
o Procedures governing the valuation of assets invested.
o Procedures governing the admission of a new partner(s).
o Procedures governing the distribution of profits and
losses.
 End of
Lecture