Chapter 6 –
Partnerships:
Accounting
concepts and
final accounts
LEARNERS SHOULD BE ABLE TO:
Define and explain accounting concepts unique to partnerships:
• Partnership
• Capital accounts
• Current accounts
• Division of profit / losses
As a sole trader, the net profit generated by the business belongs to the owner, and
therefore it is transferred or carried over from Profit & Loss account to the owner’s capital
account.
A partnership involves more than one owner, so the net profit is first posted to an
Appropriation account, where it is shared or divided according to the Partnership
Agreement. The net profit is calculated by closing off all income and expense accounts to
the Trading account and the Profit & Loss account. This is done exactly as it is done for a
sole trader, but immediately afterwards it is transferred to the Appropriation account. In
the financial statements, a note must be added for both the Capital account and the
Current account – these notes replace the notes to the Owner’s Equity account in the books
of a sole trader.
, Ledger accounts for a sole trader: Ledger accounts for a partnership:
- Profit & Loss - Trading
- Capital - Profit & Loss
- Owner's equity - Appropriation
- Capital
- Current
Entity forms
Entity:
- Any business that does transactions and runs
a business. they can buy and sell goods or
deliver a service. The aim can either be to
make a profit or to serve the community and
not make a profit.
Types of entity forms:
Sole trader A business with only one owner; no strict laws on how
accounting records should be presented. Thu business is
run by the owner.
Partnership Very similar to a sole trader, except that there are more
than one owner. Profits and losses are shared according to
a partnership agreement. The business is run by partners.
Close Corporation (CC) A CC is regulated by the law on Close Corporations. A CC
has members, and profits are distributed to members as
profit sharing. A CC is a legal entity and can be run by its
members.
, Company A company has strict regulation on how financial
statements should be presented according to the
Companies Act. According to law, a company should be
audited annually by an eternal auditor. A company is a
legal entity. A company can be public (Ltd) or private (Pty
Ltd). the shareholders of a company receive dividends.
The business in run by directors.
Not-for-profit organisations Clubs are not-for-profit organisations. They provide
facilities and enable members to take part in sport or
other community recreation activities.
The difference between a sole trader and a partnership
One owner
The Capital account
balance will vary
each year, as the One Capital
net profit is added account
and the drawingd
deducted
Sole trader
The Drawings
account is closed
One Drawings
off to the Capital
account
account at the end
of the financial year
Net profit is posted
from the Profit &
Loss account to the
Capital account
Partnerships:
Accounting
concepts and
final accounts
LEARNERS SHOULD BE ABLE TO:
Define and explain accounting concepts unique to partnerships:
• Partnership
• Capital accounts
• Current accounts
• Division of profit / losses
As a sole trader, the net profit generated by the business belongs to the owner, and
therefore it is transferred or carried over from Profit & Loss account to the owner’s capital
account.
A partnership involves more than one owner, so the net profit is first posted to an
Appropriation account, where it is shared or divided according to the Partnership
Agreement. The net profit is calculated by closing off all income and expense accounts to
the Trading account and the Profit & Loss account. This is done exactly as it is done for a
sole trader, but immediately afterwards it is transferred to the Appropriation account. In
the financial statements, a note must be added for both the Capital account and the
Current account – these notes replace the notes to the Owner’s Equity account in the books
of a sole trader.
, Ledger accounts for a sole trader: Ledger accounts for a partnership:
- Profit & Loss - Trading
- Capital - Profit & Loss
- Owner's equity - Appropriation
- Capital
- Current
Entity forms
Entity:
- Any business that does transactions and runs
a business. they can buy and sell goods or
deliver a service. The aim can either be to
make a profit or to serve the community and
not make a profit.
Types of entity forms:
Sole trader A business with only one owner; no strict laws on how
accounting records should be presented. Thu business is
run by the owner.
Partnership Very similar to a sole trader, except that there are more
than one owner. Profits and losses are shared according to
a partnership agreement. The business is run by partners.
Close Corporation (CC) A CC is regulated by the law on Close Corporations. A CC
has members, and profits are distributed to members as
profit sharing. A CC is a legal entity and can be run by its
members.
, Company A company has strict regulation on how financial
statements should be presented according to the
Companies Act. According to law, a company should be
audited annually by an eternal auditor. A company is a
legal entity. A company can be public (Ltd) or private (Pty
Ltd). the shareholders of a company receive dividends.
The business in run by directors.
Not-for-profit organisations Clubs are not-for-profit organisations. They provide
facilities and enable members to take part in sport or
other community recreation activities.
The difference between a sole trader and a partnership
One owner
The Capital account
balance will vary
each year, as the One Capital
net profit is added account
and the drawingd
deducted
Sole trader
The Drawings
account is closed
One Drawings
off to the Capital
account
account at the end
of the financial year
Net profit is posted
from the Profit &
Loss account to the
Capital account
