Accounting for Partnership Firm

Businesses can be formed through Partnership Firm. In Partnership firm 2 or more persons come together to start a business. They predetermine their profit sharing ratio. All these information is recorded through partnership deed.

Sometimes Partnership firm gets restructured due to admission of a partner, retirement of a partner, death of a partner and dissolution of the partnership firm.

When new partner is admitted into partnership firm existing partners need to sacrifice their profit ratio.

When existing partner retires then continuing partner will gain as retiring partners profit sharing will be transferred to continuing partners.

When there is death of a partner then continuing partner will gain as died partner profit sharing will be transferred to continuing partners.

When there is dissolution of a partnership firm all liabilities need to be settled subject to availability of the cash.

In typical partnership question you will be given balance sheet and information about restructuring of the partnership i.e. either admission or retirement or death of dissolution of the partnership firm

All items appearing in the balance sheet need to be recorded only once. All information provided outside balance sheet in the form of adjustment need to recorded Twice as same need to be done to tally the balance sheet.

One of the important table that need to be prepared is partners capital account as important information like partners opening balances, profits in old ratio, goodwill adjustments  etc. are recorded through this table.