Most of the accounting for partnerships will be identical with that for businesses run by individuals. The chart of accounts can be identical except for drawing and capital accounts for each partner. The main areas of differences in accounting for partnerships is formation, liquidation and income distribution.
A partnership is very easy to set up and begin. It also provides for increased managerial skills – those of the additional partners. It is easier to raise capital than in a sole proprietorship. Often the partners will be taxed at a lower rate than if the organization was a corporation and was a taxed entity. At the same time there can be major disadvantages to a partnership. It is also usually more difficult to raise capital with a partnership than a corporation.
An individual entry will be made for each partner’s contribution to the partnership. Any assets and liabilities turned over to the partnership will be debited and credited as they normally would. The partner’s capital is credited for the net amount. For instance, assume that two sole proprietorships involved in servicing microcomputers are going to be merged into a partnership. Each of the partners is to contribute various assets (including some cash from both) and liabilities to the partnership.
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