Partnership Accounts

A partnership is owned by two or more people sharing profits under a partnership agreement. The accounts add an appropriation account and separate capital and current accounts.

The appropriation account

Profit for the year is shared after adjusting for agreed items: $$\text{Residual profit} = \text{profit} - \text{salaries} - \text{interest on capital} + \text{interest on drawings}$$ The residual is divided in the profit-sharing ratio.

Interest on capital — rewards partners for investing; an appropriation, not an expense.
Partner's salary — agreed amount before sharing the rest.
Interest on drawings — a charge added back to profit, discouraging early withdrawals.