Chapter 19 - Accounting for partnerships. After reading this chapter, you should be able to: Explain the major advantages and disadvantages of a partnership, state the important provisions that should be included in every partnership agreement, account for the formation of a partnership,. | 1- McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved. Accounting for Partnerships Section 1: Forming a Partnership Chapter 19 Section Objectives Explain the major advantages and disadvantages of a partnership. State the important provisions that should be included in every partnership agreement. Account for the formation of a partnership. Advantages of a Partnership Each partner is taxed individually on his or her share of the partnership’s income It pools the skills, abilities, and financial resources of two or more individuals. It is easy and inexpensive to form. A partnership does not pay income tax. Explain the major advantages and disadvantages of a partnership Objective 1 Disadvantages of a Partnership Each partner has unlimited liability. The partnership is a mutual agency. The business lacks continuity. It has a limited life. Ownership rights are not freely transferable. Names of the partners. Name, location, and nature of the . | 1- McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved. Accounting for Partnerships Section 1: Forming a Partnership Chapter 19 Section Objectives Explain the major advantages and disadvantages of a partnership. State the important provisions that should be included in every partnership agreement. Account for the formation of a partnership. Advantages of a Partnership Each partner is taxed individually on his or her share of the partnership’s income It pools the skills, abilities, and financial resources of two or more individuals. It is easy and inexpensive to form. A partnership does not pay income tax. Explain the major advantages and disadvantages of a partnership Objective 1 Disadvantages of a Partnership Each partner has unlimited liability. The partnership is a mutual agency. The business lacks continuity. It has a limited life. Ownership rights are not freely transferable. Names of the partners. Name, location, and nature of the business. Starting date of the agreement. Life of the partnership. Rights and duties of each partner. Every partnership agreement should contain: Amount of capital to be contributed by each partner Every partnership agreement should contain: Drawings (withdrawals) by the partners. Fiscal year and accounting method. Method of allocating income or loss to the partners. Procedures to be followed if the partnership is dissolved or the business is liquidated. Memorandum entry to record formation of partnership. Investment of assets and liabilities by partners. Setting up partners’ capital accounts. Setting up partners’ drawing accounts. Subsequent investments and permanent withdrawals. Account for the formation of a partnership Objective 3 Accounting for Partnerships Section 2: Allocating Income or Loss Chapter 19 Section Objectives Compute and record the division of net income or net loss between partners in accordance with the partnership agreement. 5. Prepare a statement of partners’ .
