Define a partnership business
A partnership is a business that has 2 to 20 owners who all work together with the main aim of making profits and also who shares these profits/losses
What are 2 advantages of a partnership business?
More capital can be raised with additional partners or partners can help bring extra skills or responsibility is shared
What are 2 disadvantages of a partnership?
Partners have unlimited liability in most cases (at least 1 partner) or capital is still limited in most regards or difficult to transfer partnerships
What is a partnership deed and why may it be helpful to have one created?
Partnership deed is a formal contractual agreement among all partners to agree to terms and conditions of a partnership and it helps to resolve potential issues
What does interest on capital mean?
if the partner’s capital is unequal to the profit-sharing ratio, this is used to compensate for partners who invested more capital than others
What does interest on drawings mean?
To deter the partners from taking out cash unnecessarily, the concept can be used of charging the partners interest on each drawing or withdrawal
What does an appropriation account do?
refers to a breakdown of how a firm's profits are divided up i.e how owners of a business split losses and profits
In the appropriation section interest on drawings is added to net profit. True or False?
True
Salaries and other performance related payments are subtracted in the appropriation account. True or False?
True
Is interest on capital added or subtracted from undistributed profits in the appropriation account?
Subtracted
How are profits and losses shared in a partnership?
According to a profit and loss sharing ratio determined by the partnership
On a partners current account drawings and interest on drawings are found on the debit side of the account. Is this True or False?
True
Interest on capital is found on the debit side of the current account. True or False?
False - This is found on the credit side
Share of profits is found on the credit side of the current account. True or False?
True
Salaries will be found on the credit side of the current account. True or False?
True
Define goodwill
Goodwill is an intangible asset that accounts for the excess purchase price of another company.
