Accounting Capital Transactions in Partnership - Essay Example

Accounting Capital Transactions in Partnership Accounting for Capital Transactions in Partnership Partnership occurs where two or more people enter into a treaty with a view of establishing a business together which governed by legal rules and conditions of agreement. General conglomerate occur when two or more people enter into partnership with a view of sharing profits and outcomes of that business. “A limited partnership consists of one or more general partners and at least one limited partner” (Pride, 2012).

The limited partners contribute capital to the business unlike the general partners. In every partnership, there should be fair contribution as well as fair distribution of resources and gains. “Accounting for partnership is the same as accounting for individual’s investments” (Pride, 2012). However, every partner should ensure that he or she has separate accounts for his or her personal investments, other than the joint or partnership account. This will ensure minimal losses arising from withdrawals for purposes of personal use.

The net income is added to the capital accounts and the withdrawal account is added to the capital accounts. Members’ contributions to partnerships may be in form of properties or cash. “When a partner is added and makes his or her contributions in form of assets or cash, the company enhances reasonable or fair market prices or values the asset based on the current value of the asset” (Pride, 2012). The asset is then depreciated over its period in the business. Allocations of outputs and returns The partnership should agree on distribution of income, profits and losses.

Since partners are the owners of the business, each individual member has a right to withdraw cash from the account up to a limited amount of his or her contribution. Regardless of equal sharing of resources, net income can also be shared according to agreed percentages or ratios of their contribution. “This shows that when one member leaves or joins an existing partnership, there will be no significant difference since incomes and profits are still shared based on the three principles, that is, their contribution in the business, the ratios of their contribution and the agreed upon percentages”(Pride, 2012).

Prominence of permissible contract in enterprises When people agree to enter into partnership, they should do so through a legal agreement that is formally written. This is because the shareholders will be guided by this agreement. In this case, the written agreement enables the shareholders to choose who among the individuals can handle day to day business activities. In addition, the agreement eases retrieval of information. In cases where a member in the partnership dies, the business can easily be dissolved, but when the information is legally documented, the partnership can be reconstituted following death or insolvency of a partner.

Further, the written agreement provides information when a partner withdraws himself or herself from the partnership. Finally, the written agreement shows what amount the deceased partner receives from the partnership “In conclusion, a printed document in business is important in that it indicates the decisions of the company, guides sharing of the gains and losses of the company and defines what happens when a participant in the company either pulls out of the partnership in the company or is deceased” (Madura, 2007).

When a member pulls out of the partnership, such a member should normally be paid more than the principal contribution during entry into the business. References Madura, J. (2007). Introduction to business. Mason, OH: Thompson/South-Western. Pride, W. M., Hughes, R. J., & Kapoor, J. R. (2012). Business. Mason, OH: South-Western Cengage Learning.