Basic Partnership Accounting

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University of Toronto Scarborough
Financial Accounting
Liang Chen

Basic Partnership Accounting Forming a Partnership Initial investments are to be entered in the partnership records. These investments should be recorded at the fair market value of the assets at the date of their transfer to the partnership (no amortization should be included). However, investments of AR should be recorded at full value, with the addition of doubtful accounts Dividing Net Income or Net Loss The division of net income or loss is known as the income ratio Closing Entries: DR #0;03:0#,$#,$#[5 #,$#5,793078 .,5L9,O,..47L3J94L3.4207,9L4#5,793078.,pital for drawings CR drawings. It is necessary to divide income and loss among the numerous capital accounts Income Ratios: fixed ratio (i.e. 2:1), ratio based on capital balances or average capital during the year, salaries and then a fixed ratio, interest and then fixed ratio, salariesinterest and then fixed ratio. The objective is to agree to a -,8L89K,9ZLOO06:L9,-O701O0.99K05,793078.,5L9,OL3;0892039,3807;L.094 the partnership. Division of salaries or interest to partners are not expenses Salaries, Interest, and Remainder in a Fixed Ratio: salaries and interest must be allocated before the remainder is divided according to the specified fixed ratio, even if these provisions exceed net in
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