Partnership Finances PDF
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Summary
This document explains how partnerships can borrow money from partners. Loans are treated like any other loan, and interest is a business expense. The loan is a non-current liability and the interest is transferred to the income statement.
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A partnership may borrow money from one of the partners if extra finance is required (particularly if it is needed for a fixed period of time). Loans from partners are not part of the capital of the business and are treated in the same way as any other loan. Unlike investing additional capital, mone...
A partnership may borrow money from one of the partners if extra finance is required (particularly if it is needed for a fixed period of time). Loans from partners are not part of the capital of the business and are treated in the same way as any other loan. Unlike investing additional capital, money lent to a partnership business by a partner will be repaid at an agreed time. Interest on the loan is a business expense and is not aff ected by the amount of profit or loss. When a loan is obtained from a partner Debit bank account Credit loan from partner X account When a loan is repaid to a partner Debit loan from partner X account Credit bank account The loan account appears as a non-current liability in the statement of financial position Interest on loan paid Debit interest on loan account Credit bank account Interest on loan due but not paid Debit interest on loan account Credit partner X current account* The interest on loan account is transferred to the debit of the income statement