Partnership appropriation accounts and capital/current accounts, and the features of limited companies including share capital and reserves.
Partnerships
A partnership is two or more people in business together. A partnership agreement sets out profit-sharing ratios, interest on capital, interest on drawings and any partners' salaries. Without one, profits are shared equally (Partnership Act).
Appropriation account
The appropriation account shows how the profit for the year is shared between the partners.
| Appropriation Account | $ | $ |
|---|---|---|
| Profit for the year | 40,000 | |
| Add Interest on drawings (A 500, B 300) | 800 | |
| 40,800 | ||
| Less Interest on capital (A 1,500, B 1,000) | 2,500 | |
| Less Partner's salary (B) | 6,000 | |
| (8,500) | ||
| Profit available for sharing | 32,300 | |
| Share of profit — A (1/2) | 16,150 | |
| Share of profit — B (1/2) | 16,150 |
Capital and current accounts
Capital accounts record the fixed amount each partner invested.
Current accounts record fluctuating items: share of profit and interest on capital/salary (credits), drawings and interest on drawings (debits).
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