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3. 
Fauzi
Ilmi
Arifin
Bazari
Azhar
Azizi
Dian
Paisal
Putra
Eko
Kurniadi
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4. 
Partnership
Form of
Organization
Basic
Partnership
Accounting
• Characteristic
• Organizations with partnership
• Advantages/disadvantages
• Partnership agreement
• Forming a partnership
• Dividing net income/loss
• Financial statements

5. Partnership Form of Organization

 A partnership is an association of two or more
persons to carry on as co-owners of a business for
profit.

Type of Business:
Small retail, service, or manufacturing companies.
Accountants, lawyers, and doctors.
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6. Association
of
Individuals
CoOwnership
of Property
Unlimited
Liability
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Mutual
Agency
Characteristic
of
Partnership
Limited
Life

7. Association of Individuals

The voluntary association of two or more individuals in a
partnership may be based on as simple an act as a
handshake
It is preferable to state the agreement in writing, so a
partnership is a legal entity for certain purpose
A partnership also is an accounting entity for financial
reporting purposes, the personal assets is excluded from
accounting records for partnership
The net income of a partnership is not taxed as a separate
entity
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8. Mutual Agency
each partner acts on
 Mutual Agency means that
behalf of the partnership when engaging in
partnership business.
 Act of any partner is binding on all other
partners, so long as the act appears to be appropriate
for the partnership.
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9. Limited Life

 It may be ended voluntarily at any time
 Dissolution occurs whenever a partner withdraws
or a new partner is admitted
 Dissolution does not mean the business ends
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10. Co-Ownership of Property

 Each partner has a claim on total assets
 This claim does not attach to specific assets
 All net income or net loss is shared equally by the
partners, unless otherwise stated in the partnership
agreement
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11. Unlimited Liability

 Each partner is personally and individually liable for
all partnership liabilities.
 Each partner is responsible for all the debts of the
partnership
 Each partner is said to have unlimited liability
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12. ORGANIZATIONS WITH PARTNERSHIP
CHARACTERISTICS

13. Regular Partnership

 Major Advantages
 Simple and
inexpensive to create
and operate.
 Major
Disadvantages
 Owners (partners)
personally liable for
business debts.
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14. Limited Partnership
(Ltd. Or LP)
 Major Advantages
Limited partners have
limited personal liability for
business debts as long as
they do not participate in
management.
General partners can raise
cash without involving
outside investors in
management of business.
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
 Major Disadvantages
General partners personally
liable for business debts.
More expensive to create than
regular partnership.
Suitable for companies that
invest in real estate.

15. Limited Liability
Partnership (LLP)
 Major Advantages
Mostly of interest to
partners in old-line
professions such as
law, medicine, and
accounting.
Owners (partners) are not
personally liable for the
malpractice of other
partners.
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
 Major Disadvantages
Unlike a limited liability
company, partners remain
personally liable for many
types of obligations owed to
business creditors, lenders, and
landlords.
Often limited to a short list of
professions..

16. Limited Liability
Company (LLC)
 Major Advantages
Owners have limited
personal liability for
business debts even if they
participate in management.
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
 Major Disadvantages
More expensive to create than
regular partnership.

17. Advantages for
Partnership are:
 Disadvantages for
Partnership are:
Combining skill and
resources of two or more
individual
Mutual agency
Ease of formation
Limited life
Freedom from governmental
regulations and restrictions
Unlimited liability
Ease of decision making
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18. Partnership Agreement
 The Partnership Agreement or Articles of Co-partnership:
1.
Names and capital contributions of partners
2.
Rights and duties of partners
3.
Basis for sharing net income or net loss
4.
Provision for withdrawals of assets
5.
Procedures for submitting disputes to arbitration
6.
Procedures for the withdrawal or addition of a partner
7.
Rights and duties of surviving partners in the event of a
partner’s death
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19. Basic Partnership Accounting

Forming a Partnership
Dividing net
income/loss
Financial statements
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20. Forming a Partnership

 Partner’s initial investment should be recorded at the fair
market value of the assets at the date of their transfer to
the partnership.
 E12-2 Fauzi, Ical, and Eko are forming a partnership. Fauzi
is transferring $50,000 of cash to the partnership. Ical is
transferring land worth $15,000 and a small building worth
$80,000. Eko transfers cash of $9,000, accounts receivable
of $32,000 and equipment worth $19,000. The partnership
expects to collect $29,000 of the accounts receivable.
 Instructions: Prepare the journal entries to record each of
the partners’ investments.
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21. Forming a Partnership

E12-2 Fauzi is transferring $50,000 of cash to
the partnership. Prepare the entry.
Cash
50,000
Fauzi, Capital
50,000
Ical is transferring land worth $15,000 and a small
building worth $80,000. Prepare the entry.
Land
15,000
Building
80,000
Ical, Capital
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95,000

22. Forming a Partnership

E12-2 Eko transfers cash of $9,000, accounts
receivable of $32,000 and equipment worth
$19,000. The partnership expects to collect
$29,000 of the accounts receivable. Prepare the
entry.
Cash
Accounts receivable
Equipment
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Allowance for doubtful accounts
Eko, Capital
9,000
32,000
19,000
3,000
57,000

23. Dividing Net Income or Net Loss
Partners equally share net income or net loss unless the
partnership contract indicates otherwise.
Closing Entries:

Close all Revenue and Expense accounts to Income
Summary.
Close Income Summary to each partner’s Capital
account for his or her share of net income or loss.
Close each partners Drawing account to his or her
respective Capital account.
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24. Dividing Net Income or Net Loss
Income Ratios

Partnership agreement should specify the basis for
sharing net income or net loss. Typical income ratios:
Fixed ratio.
Ratio based on capital balances.
Salaries to partners and remainder on a fixed ratio.
Interest on partners’ capital balances and the remainder
on a fixed ratio.
Salaries to partners, interest on partners’ capital, and the
remainder on a fixed ratio.
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25. Dividing Net Income or Net Loss

Exercise F. Astaire and G. Rogers have capital balances on
January 1 of $50,000 and $40,000, respectively. The
partnership income-sharing agreement provides for (1)
annual salaries of $20,000 for Astaire and $12,000 for
Rogers, (2) interest at 10% on beginning capital
balances, and (3) remaining income or loss to be shared 60%
by Astaire and 40% by Rogers.
Instructions
(a) Prepare a schedule showing the distribution of net
income, assuming net income is (1) $55,000 and (2) $30,000.
(b) Journalize the allocation of net income in each of the
situations above.
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26. Dividing Net Income or Net Loss
Exercise Prepare a schedule showing the distribution
of net income, assuming net income is (1) $55,000 and
(2) $30,000.

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27. Dividing Net Income or Net Loss
Exercise Prepare a schedule showing the distribution
of net income, assuming net income is (1) $55,000 and
(2) $30,000.

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28. Dividing Net Income or Net Loss
Exercise Journalize the allocation of net income in each of the situations
above.

(1)
(2)
Income summary
F. Astaire, Capital
G. Rogers, Capital
55,000
Income summary
F. Astaire, Capital
30,000
G. Rogers, Capital
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33,400
21,600
18,400
11,600

29. Partnership Financial Statements

The income statement for a partnership is identical to the
income statement for a proprietorship, except for the
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division of net income.

30. Partnership Financial
Statements

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31. Thank You
Syukron Katsiron
Terima Kasih
Arigatou Gozaimasu
Danke
Merci
Matur Nuhun