This document provides an overview of partnership accounting fundamentals. It defines a partnership as a business with 2 or more persons who have agreed to share profits. Key features include unlimited liability, no separate legal status, and agreement to carry on a lawful business and share profits. The document outlines what a partnership deed is and typical contents such as partner names, capital contributions, profit/loss allocation. It also summarizes rules that apply if no deed exists, such as equal profit/loss sharing and limitations on interest payments.

1. ACCOUNTING FOR
PARTNERSHIP FIRMS -
FUNDAMENTALS
Prepared By
Prasanth.S.R
M.Com., M.Ed., NET

2. CONTENTS
• Meaning of Partnership
• Definition of Partnership
• Features of Partnership
• Partnership Deed
• Contents Of The Partnership Deed.
• Rules Applicable in the Absence of Partnership Deed.
• Partnership Accounts.

3. Meaning of Partnership
Partnership is an extension of the sole-proprietary
concern. A Partnership is a business carried on by two or more
persons. They join hands together on the basis of an
agreements, pool their resources and run a lawful business.
The main aim of such a business is to earn profit to share it
among themselves. In India partnership business is governed
by the Indian Partnership Act 1932.

4. Definition of Partnership
According to the Section 4 of the Indian Partnership Act
1932, Partnership may be defined as “ the relationship between
persons who have agreed to share the profits of a business
carried on by all or any of them acting for all”.

5. Features of Partnership
1. Number of Persons
A minimum of two persons are required to form a partnership.
There is a limit on maximum number of persons which constitute a
partnership firm. The maximum number is 10 in the case of a firm
carrying on a banking business and 20 if it is engaged in any other
business.

6. Features of Partnership….
2. Agreement / Deed
A partnership is the result of an agreement between two or
more persons. The agreement may be written or oral. The written
agreement is known as partnership deed.

7. Features of Partnership….
3. Business
The partners should carry some business and should be
some lawful business.

8. Features of Partnership….
4. Sharing of Profits
The purpose of partnership must be to earn profit. The profit
should be shared by the partners in agreed ratio. If there is no specific
agreement in this regard, partners will share the profits equally.

9. Features of Partnership….
5. Utmost Good Faith
‘Good Faith’ is the essence of a partnership. Hence each
partner should be just and faithful to another.

10. Features of Partnership….
6. Unlimited Liability
Liability of each partner is unlimited . It means that partners
are individually and collectively liable for all debts of the firm.

11. Features of Partnership….
7. No Separate Legal Existence
A partnership is not a legal entity . It has no separate legal
existence apart from the partners.

12. Partnership Deed
Partnership is the result of an agreement between two or
more persons. The agreement may be oral or written. When the
agreement is in written form it is known as partnership deed. It
may be defined as “A document containing the terms of
partnership as agreed by the partners is called ‘Partnership
Deed’ or ‘Articles of Partnership’.

13. Contents of Partnership Deed
• Name of the firm
• Name and addresses of all partners.
• Nature and place of business.
• Date of commencement of partnership.
• Duration of Partnership , if any
• Capital contribution by the partners.
• The amount Which can be withdrawn by each partner.
• Rules regarding operation of bank accounts.
• Division of profit or loss.
• Interest on capital / drawings.
• Interest in partner’s loan.
• Salaries, commission , etc. if payable to any partner.
• Details of division of work among the partners.
• Ascertainment of goodwill on admission, retirement & death of a partner.
• Settlement of accounts on retirement or death of a partner and on dissolution of a firm.

14. Rules Applicable in the Absence of
Partnership Deed
Normally a partnership deed includes all matters relating to
the mutual relationship amongst partners. But in certain cases there
will no such an express agreement . In such cases the partners have
to follow the following provisions in their business.
1.Profit Sharing : Partners are entitled to share equally the profits
and losses of the firm , irrespective of their capital contribution.
2. Interest on Capital : Partners are not entitled to interest on capital. But
if there is any agreement for providing interest on capital , such interest is
payable only out of the profit of the business. If there is loss interest on
capital need not be allowed.

15. Rules Applicable in the Absence of
Partnership Deed
3. Interest on Loan / Advances : If any partner has advanced some
money to the firm in addition to his capital then he will be entitled to get
an interest on the amount at the rate of 6 % per annum even if there are
losses.
4.Interest on Drawings : No interest will be charged on drawings
made by the partners.
5. Remuneration to Partners : Partners are not entitled to any salary or
other remuneration.