Sales Cost of Goods Sold Inventory, Jan.1 Purchases Cost of goods available for sale Less: Inventory, Dec. 31 Cost of Goods Sold Gross Profit on Sales Operating expenses:
Partnership Accounting
Closing the Accounts of a Partnership at Year-end
By the end of the first year operation, Guangyi Company had earned a net income of 600 000 yuan, which was divided equally by the two partners:
Gunagli, Captial
180 000
Guanghai, Capital
200 000
Guangli, Drawing
180 000
Guanghai, Drawing
200 000
To transfer debit balances in partners’ drawing accounts to their
Chapter 10
Accounts for Partnership and Distribution of Net Income
Accounts for Partnership
Partnership: a convenient, inexpensive means of combining the capital and the special abilities of two or two partners.
Salary allowances + A fixed ratio: Salary allowances to the partners, with remaining net income or loss divided in a fixed ratio
Interest allowances + A fixed ratio: Interest allowances on partners’ capital balances, with remaining net income or loss divided in a fixed ratio Salary allowances + Interest allowances + A fixed ratio: Salary allowances to the partners, interest allowances on partners’ capital balances, and remaining net income or loss divided in a fixed ratio
respective capital accounts
Partnership Accounting
Financial Statements of a Partnership at Year-end
Guangyi Company Income Statement For the Year Ended December 31, 200X
950 000 50 000
300 000 1 300 000
200 000 1 100 000
Total
1 670 000 330 000 600 000
2 600 000 380 000
2 220 000
Distribution of Net Income of Partnership
Profits earned by partnership compensate the owners for: Personal services rendered to the business Capital invested in the business Entrepreneurial risk
Selling expenses General expenses Net Income Division of net income: To Guangli (50%) To Guanghai (50%)
160 000 880 000 1 040 000
40 000
200 000 100 000
300 000 300 000
1 900 000 yuan
1 000 000 900 000 300 000 600 000 yuan 600 000 yuan
Partnership Accounting
Financial Statements of a Partnership at Year-end
Guangyi Company Statement of Partners’ Capital For the Year Ended December 31, 200X
Methods of Dividing Partnership Net Income among the Partners
Salaries to Partners, with Remainder in a Fixed Ratio
Division of Net Income
Guangli
Guanghai
Guanghai (50%)
240 000
Total share to each partner
440 000
360 000
Net Income 800 000 yuan 320 000
480 000
480 000 -0- yuan
Income Summary
800 000
Guangli, Capital
Closing the Accounts of a Partnership at Year-end
Withdrawals during the year amounted to 180 000 yuan for Guangli and 200 000 yuan for Guanghai. The entry to close the drawing accounts:
Net income to be divided
Salary allowances to Partners
200 000
120 000
Remaining income after salary
allowances
Allocated in a fixed ratio:
Guangli (50%)
240 000
Guangli
Guanghai
Net income to be divided
Interest allowances on
beginning Capital:
Guangli (650 000 * 30%)
195 000
Guanghai (1 300 000 * 30%)
390 000
Residual loss after interest allowances
Joint venture: the sharing of an operation’s cost, risk, and management with a partner pr partners from overseas.
Partnership Accounting
Opening the accounts of a New Partnership
440 000
Guanghai, Capital
360 000
To close the income summary account by crediting each partner with agreed ratio upon salary allowance and dividing the remaining profits equally
Methods of Dividing Partnership Net Income among the Partners
Interest Allowances on Partners’ Capital, with Remainder in a Fixed Ratio
Division of Net Income
Income Summary
600 000
Gunagli, Captial
300 000
Guanghai, Capital
300 000
To close the income summary account to the partners’ capital account
Partnership Accounting
Methods of Dividing Partnership Net Income among the Partners
Most profit-sharing agreements fall under one of the following types:
A ratio: partners may agree upon any fixed ratio
The journal entries to open the accounts of the partnership (Gunagli’s):
Cash
700 000
Accounts Receivable
100 000
Inventory
90 000
Other Assets
260 000
Accounts Payable
Methods of Dividing Partnership Net Income among the Partners