Partners Profit and Loss Appropriation Account - PDF

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					              PARTNERSHIPS
Lesson        Introduction to partnerships

         14   Learning Outcomes and Assessment Standards

                  Learning Outcome 1: Financial information
                  The learner is able to demonstrate knowledge, understanding and the application of financial
                  information according to generally accepted accounting practice and concepts.
                  Assessment Standard
                  •	 Define and explain accounting concepts for partnerships and non-profit organisations.
                  •	 Within the context of the accounting cycle, record the unique information of a partnership
                       and a club.
                  •	 Analyse and show the effect of transactions on the accounting equation of partnerships and
                       clubs.


              Overview
              In this lesson you will investigate:
              ●     Year-end procedures
              ●     Appropriation account
              ●     Salaries to partners
              ●     Interest on capital


              Lesson
    DVD       PARTNERSHIPS
              YEAR-END PROCEDURES AND THE APPROPRIATION ACCOUNT
                           Debit                                       Credit
              1.           Sales                                       Debtors allowances
              2.           Trading account                             Cost of sales
              3.           Sales                                       Trading account
              4.           Trading account                             Profit and loss account
              5.           All income items                            Profit and loss account
              6.           Profit and loss account                     All expense items


              APPROPRIATION ACCOUNT
              ●     In a partnership, the profit or loss is shared between the partners.
              ●     An APPROPRIATION ACCOUNT is created in order to facilitate the splitting of
                    the net income or loss between the partners.
              ●     The PROFIT AND LOSS ACCOUNT is debited and the APPROPRIATION
                    ACCOUNT is credited with the profit.




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                                       LEDgER ACCOUNTS


Dr.          CURRENT ACCOUNT: SMIT                                             B3     Cr
2004                                             2004
Feb    28    Drawings: Smit   GJ1       54 000 Feb      28   Appropriation     GJ1    85 000
                                                             a/c
             Balance          c/d       31 000
                                        85 000                                        85 000
                                                 Mar    1    Balance           b/d    31 000

Dr.          CURRENT ACCOUNT: RAJ                                              B4     Cr
2004                                             2004
Feb    28    Drawings: Raj    GJ1       42 000 Feb      28   Appropriation     GJ1    85 000
                                                             a/c
             Balance          c/d       43 000 2
                                        85 000                                        85 000
                                                 Mar    01   Balance           b/d    43 000



Dr.          DRAwINg: SMIT                                                     B5     Cr
2004                                             2004
Feb    28    Balance          b/d       54 000 Feb      28   Current a/c:      GJ1    54 000
                                                             Smit

Dr.          DRAwINg: RAJ                                                      B6     Cr
2004                                             2004
Feb    28    Balance          b/d       42 000 Feb      28   Current a/c: Raj GJ1     42 000

                                    FINAL ACCOUNTS SECTION
                                    APPROPRIATION ACCOUNT
                                                                                      F3
2004                                             2004
Feb    28    Current a/c:     GJ1       85 000 Feb      28   Profit and loss   GJ1   170 000
             Smit                                            a/c
             Current a/c: Raj GJ1       85 000
                                       170 000                                       170 000



SALARIES OF PARTNERS
MONTHLY SALARY PAID TO PARTNER
DEBIT:      Drawings: A
CREDIT Bank
ANNUAL SALARY ALLOwANCES
DEBIT:      Salary: A / Salary: B
CREDIT: Current account: A / Current account: B
CLOSINg TRANSFER END OF YEAR
DEBIT:      Appropriation account
CREDIT: Salary A and/or Salary B                                                               5
                 ACCOUNTINg EQUATION

                 ACCOUNT DEBIT                               ACCOUNT CREDIT
                 Drawings: A                                 Bank
                 Salary withdrawn by partner

                 ACCOUNT DEBIT                               ACCOUNT CREDIT
                 Salary: A                                   Current account: A
                 Salary allowance for the year

                 INTEREST ON CAPITAL
                    – APPROPRIATION OF PROFITS
                    – JOURNAL ENTRY DONE AT THE END OF THE YEAR
                           DEBIT:    INTEREST ON CAPITAL
                           CREDIT: CURRENT ACCOUNT: A
                 ONLY ONE INTEREST ON CAPITAL ACCOUNT IS KEPT FOR BOTH PARTNERS.
                 CLOSINg TRANSFER
                    – JOURNAL ENTRY
                           DEBIT:    APPROPRIATION ACCOUNT
                           CREDIT: INTEREST ON CAPITAL

                 SUMMARY
                 In this lesson we covered the year-end procedures and the appropriation account
                 for partnerships.


                 Activity
    InDIVIDual   INSTRUCTIONS
                 S. San and D. Dan entered into a partnership agreement trading as Sandan
                 Traders on 1 March 2001. In terms of the partnership agreement they share
     PaIRS       profits and losses in the ratio of 2:1. San contributed capital of R400 000 and
                 Dan R200 000, in cash. At the end of the first accounting period, the net profit
                 was R120 000. During the year, San had taken R3 000 per month as drawings,
    formative
    assessment   and Dan R2 000 per month.
                 REQUIRED
                 Journal entries for closing transfers in respect of the net income, sharing of profit
                 between the partners and drawings. Prepare the related ledger accounts in the
                 general ledger of Sandan Traders.




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