UNIT 1: ACCOUNTING FOR PARTNERSHIP of the partners.

3.Offers relative freedom and flexibility of action in

decision-making.
What is partnership?
Advantages Vs Corporation
 In a contract of partnership, two or more persons 4.Easier and less expensive to organize.
bind themselves to contribute money, property, or 5.More personal and informal.
industry to a common fund, intending to divide
the profit among themselves. Disadvantages
 Two or more persons may also form a partnership 6.Easily dissolved and thus unstable compared to a
for the exercise of a profession (Civil Code of the corporation.
Philippines, Article 1767). 7.Mutual agency and unlimited liability may create
 The partnership has a juridical personality personal obligations to partners.
separate and distinct from that of each of the 8.Less effective than a corporation in raising large
partners (Civil Code of the Philippines, Article amounts of capital.
1768).
 As a separate person, the partnership can
acquire its property, bring actions in court in Partnership distinguished from corporation
its name, and incur its liabilities and
obligations.  Manner of creation
 Partnerships are generally associated with the - A partnership is only created by mere
practice of law, public accounting, medicine, and agreement of the partners while corporations
other professions and this is called General are created by operation of law.
Professional Partners.  Number of persons
- Two or more persons (partnership)
- Not exceeding 15 persons (corporation).
Accounting Equation for partnership - Singe stockholder (one-person corporation).
 Commencement of juridical personality
A = L + PE - In a partnership, juridical personality
(Asset = Liabilities + Partner’s Equity) commences from the execution of the
Articles of Partnership.
- In a corporation, from the issuance of the
Characteristics of Partnership certificate of incorporation by SEC.
1. Mutual Contribution  Management
 There cannot be a partnership without the - Every partner is an agent of partners if there
contribution of money, property, or is no managers appointed.
industry. - Management is vested on the Board of
2. Division of Profits and Losses Directors in a corporation.
 Extent of liability
 Each partner must share in the profits or
- Each partner, except limited partners, is
losses of the venture.
liable for any liabilities incurred.
3. Co-ownership of Contributed Assets - In a corporation, shareholders are only liable
 All assets contributed are owned by the to the extent of their interest or investment.
partnership by its separate and distinct  Right of succession
juridical personality. - There is no right of succession in partnership.
 If one partner contributes an asset, all - There is a right of succession in a
partners jointly own it. corporation. It can continue its existence
4. Mutual Agency regardless of death, withdrawal, insolvency,
 Each partner becomes the agency of the or incapacity of its directors or shareholders.
business and has the authority to make  Terms of existence
decisions on behalf of the partnership. - Any time agreed by the partners.
5. Limited Life - Has perpetual existence unless stated
otherwise in the Articles of Incorporation
 A partnership has a limited life.
 In other words, regardless of individuals
 It can be dissolved by the admission, involved in the business quitting, retiring, or
death, incapacity, withdrawal of a partner, even passing away, the business entity will
or expiration of the term specified in the still exist.
partnership agreement.
6. Unlimited Liability Classification of Partnership
 All partners (except limited partners), 1) According to Object
including industrial partners, are a. Universal partnership of all present
personally liable for all debts incurred by property
the partnership. If debts are not settled, - all contributions become part of the
creditors can claim the personal assets of partnership fund.
the partners. b. Universal partnership of profits
7. Income Tax - where partners contribute what they will
 Partnerships, except general professional receive as a result of their work or
partnership, is subjected to an income tax service rendered during the operation of
rate at 25% of taxable income. the partnership.
8. Partners’Equity Account - If the articles of universal partnership
 Each partner has a capital account and a did not specify its nature, it would be
considered a universal partnership of
drawing account that serve similar
profits.
functions as OE in sole proprietorship.
c. Particular partnership
- The object of the partnership - use or
Advantages and disadvantages of a fruits, or a specific undertaking or the
Advantagespartnership
Vs Sole Proprietorship exercise of a profession.
1.Bring greater financial capacity to the business. 2) According to Liability
2.Combines special skills, expertise, and experience a. General

FINACCT: PARTNERSHIP &

CORPORATION
CREATED BY: JAZMINE GO
 - All partners are liable to the extent of 8. The drawings and salaries to be allowed to
their personal properties. partners;
b. Limited 9. The provisions of arbitration of disputes,
- Limited partners are only liable to the dissolution, and liquidations.
extent of their contribution to the
partnership.
SEC Registration
- The law states that there should be at
 When capital is ₱3,000 or more, in money or
least one general partner.
property, the public instrument must be
3) According to duration
recorded with the Securities and Exchange
a. Partnership with a fixed term
Commission (SEC).
- Life or period of the partnership has
 Proposed business name:
been agreed upon by the partners.
 The partnership name shall bear the
b. Partnership at will
word Company or Co.
- There is no fixed term.
 If it is a limited partnership, the word
- It is at the discretion of the partners to
Limited or Ltd.
determine when to cease the existence
 A professional partnership may bear
of the partnership.
the words Company, Associates, or
4) According to purpose
Partners, or other similar descriptions.
a. Commercial or trading partnership
- Formed for the transaction of business.
b. Professional or non-trading partnership Accounting for Partnership
- Formed for the exercise of profession.  There is a capital account and drawing account
5) According to the legality of its existence for each partner.
a. De jure partnership  A partner’s capital account is credited for his
- One who complied with all legal initial and additional net investment (assets
requirements for its establishment. contributed less liabilities assumed by the
b. De facto partnership partnership).
- One who failed to comply with all legal  A drawing account is debited to reflect assets
requirements for its establishment. temporarily withdrawn by the partner from the
partnership.
Kinds of partnership
1. General partner – one who is liable to the
extent of his separate property after all the
assets of the partnership is exhausted.
Hierarchy
2. Limited partner – oneofwho
priority
is only liable to the
extent of his contribution and is not allowed to
contribute industry or service. 1. Agreed value - means the fair market value of
3. Capitalist partner – one who contributes money Contributed Property as agreed to by the
or property to the partnership. contributing partner and the Partnership
4. Industrial partner – one who contributes 2. Fair market value – the price that an asset
knowledge or service. would sell for under market conditions
5. Managing partner - one whom the partners 3. Book value – the value of an asset as shown on
have appointed as manager. bookkeeping or balance sheet.
6. Liquidating partner – liquidates properties to
settle liabilities after dissolution.
Accounts that affect partners’equity
7. Dormant partner – does not take active parts
and is not known as a partner (sleeper
partner). Decrease (debit) Credit (Increase)
8. Silent partner – does not take active parts Partners’Equ Drawings/ Initial investment/
though may be known as a partner (pabigat!). ity Withdrawals original investment
9. Secret partner – takes active partner but not Expenses Revenue
known as a partner by outside parties. Loss Additional
10. Nominal partner or partner by estoppel – not a Investment
partner but represents himself as one.

Articles of partnership
1. The partnership name, nature, purpose, and
location;
2. The names, citizenship, and residence of the
partner;
3. The date of formation and duration;
4. The capital contribution of each partner, the
procedure of valuing non-cash investments,
treatment of excess contribution (as capital or as
loan), and the penalties for a partner’s failure to
invest and maintain the agreed capital;
5. The rights and duties of each partner
6. The accounting period to be adopted, the nature
of accounting records, financial statements, and
audits by independent public accountants;
7. The method of sharing profit or loss, frequency of
income measurement, and distribution, including
any provisions for the recognition of differences
in contributions;

FINACCT: PARTNERSHIP &

CORPORATION
CREATED BY: JAZMINE GO