Partnership:

A partnership is the formal business arrangement where different individuals or institutions

agree to form an organization in which they would advance their interests. In the most frequent

instances, partnership is incorporated between two or more people called themselves general partners

to achieve and share profits and losses. According to the partnership act 1890, it describes partnership

as the association that exits among the individuals who are willing to carrying the business in a common

view of earning profits. However, at times individuals have come into the informal agreement but fulfill

the requirement of the law then they would be considered as the partners whether they intend it or

not. So it is really important for the individuals that they should understand the requirements and rights

and obligations in the beginning, if they are considering setting up the partnership firm.

Some basic features of partnership:

 In partnership, the group of people forming the partnership lies between two to ten.

 There has to be an agreement in order to carry out the business. This agreement can either be

implicit or explicit.

 Profit or loss would be shared among the partners as per the agreed percentages.

Accounting procedures:

Accounting processes of partnership are similar to the sole proprietorship. That includes,

financial statements, cost statements etc. some of the most common accounting practices found in

the partnership are explained below.

 Owner’s equity account:

Equity of the partnership is continuously influenced by their investments, withdrawals and profit or

loss. Due to this very reason there are two accounting ledgers are maintained i.e. partner’s capital and

partners drawing account.

Partners capital account is utilized for the purpose of recording the permanent changes take place in

the partner’s equity. They include initial investment, further investments, or the withdrawal of the

investment from the business. However, partner’s drawing account is responsible for keeping the

records of the temporary changes in the partners equity which caused by the withdrawal of cash from

the business for personal use etc.

Accounting for net income/ loss:

The other element which separates the accounting of partnership from the sole proprietorship

is the distribution of net loss or profit among the partners.