Problem Solving Survival Guide Volume I: Chapters 1-12 to accompany Accounting Principles, 11th Edition

CHAPTER 12

ACCOUNTING FOR PARTNERSHIPS

OVERVIEW

There are three forms of business organization: proprietorship, partnership, and corporation. Accounting for the revenues, expenses, assets, and liabilities is the same for all three forms of business organization; however, these three forms differ in accounting for owners' equity. Thus far in this book, we have been referring to a sole proprietorship when our discussions involved owner's equity. Accounting for owners' equity of a corporation will be discussed in Chapters 13 and 14. In this chapter, we will examine accounting for owners' equity in a partnership. The procedures are the same ones that are used in accounting for a proprietorship—with the exception that separate capital and drawing accounts must be maintained for each partner.

SUMMARY OF LEARNING OBJECTIVES

1. Identify the characteristics of the partnership form of business organization. The principal characteristics of a partnership are: (a) association of individuals, (b) mutual agency, (c) limited life, (d) unlimited liability, and (e) co-ownership of property.
2. Explain the accounting entries for the formation of a partnership. When formed, a partnership records each partner's initial investment at the fair market value of the invested assets at the date of their transfer to the partnership.
3. Identify the bases for dividing net income or net loss. Partnerships divide net ...