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Flow Chart (L-2)

This document outlines the accounting process for partnership firms. It discusses how profits and losses are allocated based on whether a partnership deed exists. If a deed exists, profit/loss is shared according to the deed. If not, profit/loss is shared equally. The document also describes how a Profit and Loss Appropriation account is used to debit expenses like interest and commission and credit income like interest charged on capital or drawings. Finally, distributable profit is allocated to partners' capital or current accounts based on their profit-sharing ratios.

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Jaza
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2K views1 page

Flow Chart (L-2)

This document outlines the accounting process for partnership firms. It discusses how profits and losses are allocated based on whether a partnership deed exists. If a deed exists, profit/loss is shared according to the deed. If not, profit/loss is shared equally. The document also describes how a Profit and Loss Appropriation account is used to debit expenses like interest and commission and credit income like interest charged on capital or drawings. Finally, distributable profit is allocated to partners' capital or current accounts based on their profit-sharing ratios.

Uploaded by

Jaza
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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ACCOUNTING FOR PARTNERSHIP FIRMS — FUNDAMENTALS

Charge Against Profit Appropriation of Profit

 Interest on Capital is not allowed


Profit and Loss Account (After debiting Partnership No  Interest on Drawings is not charged
operating and non-operating expenses, Deed Exists  Remuneration to Partners is not allowed
losses and crediting operating and  Profit/Loss is shared Equally
non-operating incomes) Yes
Prepare Profit and Loss
Appropriation Account
Further Debited by

 Manager’s Commission Debited by Credited by


 Rent Paid to Partner
 Interest on Loan by Partner @ 6% p.a.  Interest on Current Account Interest charged on Debit Balance in
(If no Partnership Deed exists or at the (If so provided in Partnership Deed or Partner’s Current Account
rate provided in the Partnership Deed) Agreed Otherwise) Interest on Drawings charged at
 Interest on Capital if it is a Charge Interest on Capital at agreed rate of Determine Distributable Profit agreed rate of interest
interest
 Remuneration to Partners as agreed
Partner’s Capital A/c ...Dr.
Credited By  Transfer to Reserve
To Interest on Current A/c
Guarantee To Interest on Drawing A/c
For Interest on Current Account:
Interest on Loan given by the firm to the of Profit to Partner(s) No
partners at the agreed rate of interest Interest on Partner’s Current A/c ...Dr.
by Partner(s) Interest on Drawings A/c ...Dr.
To Partner’s Capital A/c
or firm Interest on Current A/c ...Dr.
For Interest on Capital:
Determine Net Profit/Loss Interest on Capital A/c ...Dr. To Profit and Loss Appropriation A/c
Yes
To Partner’s Capital A/c
For Salary/Remuneration to Deficiency shared by
Net Profit/Loss transferred to Profit and
Partners: agreed Partners/Firm
Loss Appropriation Account
Partner’s Salary A/c ...Dr. Distribute Profit in PSR
To Partner’s Capital A/c
Profit and Loss A/c ...Dr. Profit and Loss Appropriation A/c ...Dr.
Guaranteeing Partner’s Capital/Current A/c ...Dr. To Partners’ Capital/Current A/cs
To Profit and Loss Appropriation A/c Profit and Loss Appropriation A/c ...Dr. To Guaranteed Partner’s Capital/Current A/c
To Partner’s Capital A/c
To Salary/Remuneration A/c
To Interest on Capital A/c
To Reserve A/c

Abbreviation Used: Note: When Capital Accounts are maintained following Fixed Capital Accounts Method, amount is debited/credited to Partners’
PSR—Profit-sharing Ratio Current Accounts. In case of fluctuating capitals, amount is debited/credited to Partners’ Capital Accounts.

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