WHAT??

Two or more persons join together to carry on a business in common with a view of earning profit

EXAMPLE ???

Limited life changes in ownershipUnlimited liabilitypersonal assets of each partner can be taken to pay for the debts of the business.

Mutual agencyeach partner can bind the business to a contract

Co-ownership of propertiesall the assets contributed by partners to the partnership now belongs to the partnership

Advantages :

ease of formationpooling of skillsmore capital than a sole tradersharing of losses

Disadvantages

unlimited liabilitylimited lifetoo many people making decisionssharing of profits

Interest on drawingsto prevent the partners from taking out too much and too soonrevenue to the business

Interest on capitalfor the return on investment to partners expense to the business

Partners salariescompensation for managing the business expense to the business

Interest on partners loan to the partnershipto the partners who lend their money to the partnership An operating expense to the business

Profit and loss sharing ratiobased on an agreement among the partners

If the partnership agreement states only on how profit (no mention of loss) is to be shared, losses are assumed to be shared the same way as profit

No interest is allowed on capitalNo interest is charged on drawingsNo salaries allowedInterest is allowed on partners loan to the partnership at the rate of 8% per annumProfits and losses are shared equally

Statement of Comprehensive IncomeAppropriation Statement

Statement of Financial PositionFinanced by: section

Partners Account Capital Account Current Account

A worked Example from Study NotesS & R Enterprise