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Lecture Fundamental accounting principles - Chapter 12: Accounting for partnerships

Lecture Fundamental accounting principles - Chapter 12: Accounting for partnerships. After completing this chapter you should be able to: Identify characteristics of partnerships and similar organizations, compute partner return on equity and use it to evaluate partnership performance, prepare entries for partnership formation, allocate and record income and loss among partners. | Accounting for Partnerships Chapter 12 PowerPoint Editor: Beth Kane, MBA, CPA Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Chapter 12: Accounting for Partnerships 12-C1: Partnership Form of Organization 2 Partnership Form of Organization Partnership Agreement Voluntary Association Limited Life Taxation Unlimited Liability Mutual Agency Co-Ownership of Property C 1 3 A partnership is an unincorporated association of two or more people to pursue a business for profit as co-owners. Many businesses are organized as partnerships. They are especially common in small retail and service businesses. Many professional practitioners, including physicians, lawyers, investors, and accountants, also organize their practices as partnerships. Forming a partnership requires that two or more legally competent people (who are of age and of sound mental capacity) agree to be partners. Their agreement becomes a partnership contract, also called articles of copartnership. Although it should be in writing, the contract is binding even if it is only expressed verbally. Partnership agreements normally include details of the partners’ (1) names and contributions, (2) rights and duties, (3) sharing of income and losses, (4) withdrawal arrangement, (5) dispute procedures, (6) admission and withdrawal of partners, and (7) rights and duties in the event a partner dies. A partnership is not subject to taxes on its income. The income or loss of a partnership is allocated to the partners according to the partnership agreement, and it is included in determining the taxable income for each partner’s tax return. Partnership income or loss is allocated each year whether or not cash is distributed to partners. Organizations with Partnership Characteristics Limited Partnerships (LP) General partners assume management duties and unlimited liability for partnership debts. Limited partners . | Accounting for Partnerships Chapter 12 PowerPoint Editor: Beth Kane, MBA, CPA Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Chapter 12: Accounting for Partnerships 12-C1: Partnership Form of Organization 2 Partnership Form of Organization Partnership Agreement Voluntary Association Limited Life Taxation Unlimited Liability Mutual Agency Co-Ownership of Property C 1 3 A partnership is an unincorporated association of two or more people to pursue a business for profit as co-owners. Many businesses are organized as partnerships. They are especially common in small retail and service businesses. Many professional practitioners, including physicians, lawyers, investors, and accountants, also organize their practices as partnerships. Forming a partnership requires that two or more legally competent people (who are of age and of sound mental capacity) agree to be partners. Their