Partnership Accounting PDF Fall 2024-2025

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 Partne...

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. 1.Business 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 1.the owner has unlimited liability. 1. there is unlimited liability for the 1. Corporation income taxed twice partners. as corporate profit and on 2.the 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. 3.the 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