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Questions and Answers
What is the primary objective of forming a partnership?
What is the minimum number of persons required to form a partnership?
What is a characteristic of a general partnership?
What is the purpose of a partner's capital account?
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What is the profit and loss sharing ratio used for?
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What is a benefit that partners may be entitled to?
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Study Notes
Partnership Definition and Features
- Association of two or more persons to carry on a business with the objective of earning profits.
- Partners share profits and losses of the business in an agreed ratio.
Key Features of Partnership
- Minimum two persons are required to form a partnership.
- Agreement among partners to carry on a business is necessary.
- Partnership must be formed to carry on a business.
- Profits and losses of the business must be shared among partners.
- Partners have unlimited liability, meaning their personal assets are at risk in case of business losses.
Types of Partnerships
- General Partnership: All partners have unlimited liability and are actively involved in the business.
- Limited Partnership: One or more partners have limited liability, while the others have unlimited liability.
Accounting for Partnership
- Partners' Capital Accounts: Each partner has a capital account to record their initial investment and share of profits and losses.
- Profit and Loss Sharing Ratio: The ratio in which profits and losses are shared among partners.
- Interest on Capital: Partners may be entitled to interest on their capital investments.
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Description
This quiz covers the definition and features of partnerships in accounting, including the requirements and characteristics of a partnership firm.
