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This document provides an overview of accounting for partnership firms. It outlines how profits and losses are distributed based on whether a partnership deed exists. If a deed exists, profit/loss is shared as specified in the deed. If not, profit/loss is shared equally. The profit and loss appropriation account is used to credit/debit partners for their share of profit/loss, interest on capital, interest on current accounts, and other items as specified in the partnership deed. The final step is to distribute the profit to partners' capital/current accounts based on their profit-sharing ratio.

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Pankaj Mahajan
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218 views1 page

Flow Chart-1

This document provides an overview of accounting for partnership firms. It outlines how profits and losses are distributed based on whether a partnership deed exists. If a deed exists, profit/loss is shared as specified in the deed. If not, profit/loss is shared equally. The profit and loss appropriation account is used to credit/debit partners for their share of profit/loss, interest on capital, interest on current accounts, and other items as specified in the partnership deed. The final step is to distribute the profit to partners' capital/current accounts based on their profit-sharing ratio.

Uploaded by

Pankaj Mahajan
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Accounting for Partnership Firms

ACCOUNTING FOR PARTNERSHIP FIRMS — FUNDAMENTALS

Charge Against Profit Appropriation of Profit

 Interest on Capital is not allowed


Profit & Loss Account (After debiting Partnership No  Interest on Drawings is not charged
operating and non-operating expenses, Deed Exists  Remuneration to Partners is not allowed
losses and crediting operating and  Profit/Loss is shared Equally
non-operating incomes) Yes
Prepare Profit & Loss
Appropriation Account
Further Debited by

 Manager’s Commission Debited by Credited by


 Rent Paid to Partner
 Interest on Loan by Partner @ 6% p.a.  Interest on Current Account Interest charged on Debit Balance in
(If no Partnership Deed exists or at the (If so provided in Partnership Deed or Partner’s Current Account
rate provided in the Partnership Deed) Agreed Otherwise) Interest on Drawings charged at
 Interest on Capital if it is a Charge Interest on Capital at agreed rate of Determine Distributable Profit agreed rate of interest
interest
 Remuneration to Partners as agreed
Partner’s Capital A/c ...Dr.
Credited By  Transfer to Reserve
To Interest on Current A/c
Guarantee To Interest on Drawing A/c
For Interest on Current Account:
Interest on Loan given by the firm to the of Profit to Partner(s) No
partners at the agreed rate of interest Interest on Partner’s Current A/c ...Dr.
by Partner(s) Interest on Drawings A/c ...Dr.
To Partner’s Capital A/c
or firm Interest on Current A/c ...Dr.
For Interest on Capital:
Determine Net Profit/Loss Interest on Capital A/c ...Dr. To Profit & Loss Appropriation A/c
Yes
To Partner’s Capital A/c
For Salary/Remuneration to Deficiency shared by
Net Profit/Loss transferred to Profit &
Partners: agreed Partners/Firm
Loss Appropriation Account
Partner’s Salary A/c ...Dr. Distribute Profit in PSR
To Partner’s Capital A/c
Profit & Loss A/c ...Dr. Profit & Loss Appropriation A/c ...Dr.
Guaranteeing Partner’s Capital/Current A/c ...Dr. To Partners’ Capital/Current A/cs
To Profit & Loss Appropriation A/c Profit & Loss Appropriation A/c ...Dr. To Guaranteed Partner’s Capital/Current A/c
To Partner’s Capital A/c
To Salary/Remuneration A/c
To Interest on Capital A/c
To Reserve A/c

Abbreviation Used: Note: When Capital Accounts are maintained following Fixed Capital Accounts Method, amount is debited/credited to Partners’
PSR—Profit-sharing Ratio Current Accounts. In case of fluctuating capitals, amount is debited/credited to Partners’ Capital Accounts.

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