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SubjectFree lesson

PARTNERSHIP ACCOUNTS

ClassNotes Team 5 MIN READUPDATED 3 JUL 2026

FINANCIAL ACCOUNTING SSS3 FIRST TERM        

WEEK 1

PARTNERSHIP ACCOUNTS

Performance Objectives

Students should be able to:

  1. Define Partnership
  2. List seven items that should be contained in a partnership deed.

Contents

PARTNERSHIP can be defined as the relationship which exists between two or more persons who are carrying on business in common with a view to making a profit. The rules governing the conduct of a partnership business are contained in the document known as the Deed of Partnership or Articles of Partnership or Partnership Agreement.

CONTENTS OF THE DEED OF PARTNERSHIP

The partnership Deed contains among others, the following.

  1. Name of the partnership
  2. Names of the partners
  3. Capital contribution
  4. Nature of the partnership business
  5. Profit and loss sharing ratio
  6. Interest in capital contribution
  7. Interest chargeable on drawings
  8. Duration of the partnership
  9. Rules regarding admission or retirement of a partner
  10. Rules on the dissolution of the partnership

WHEN THERE IS NO AGREEMENT

Where there is no specific arrangement concerning the partnership agreement, section 24 of the Partnership Act 1890 laid down the rules that should be applied as follows:-

  1. No interest is to be paid on capital contributed by each partner
  2. No partner should receive a salary or remuneration.
  3. No interest is to be charged on drawings
  4. Profits and losses are to be shared equally.
  5. 5% interest should be allowed on any loans made by any partner in excess of the agreed capital contribution.

FIXED CAPITAL ACCOUNT

The capital accounts of partners are usually regarded as fixed so as to provide permanent evidence of the initial amount with which the partnership is commenced. Where capital is regarded as fixed, a current account must be opened for each of the partners.

PARTNERS CURRENT ACCOUNT

The current account of each partner is prepared to show what such a partner is entitled to withdraw from the business at any point in time. It is credited with the salary, commission, share of profits, interest on capital, debited with drawings, interest on drawings, etc.

EXERCISE 1

Obi and Oba are partners in a firm of chartered accountants with initial capital contributions of N50,000 and N40,000 respectively which are to be kept fixed in the partnership books. You are required to show the cash account, partners’ capital accounts and balance sheet extracts.

PARTNERSHIP ACCOUNTS

FIXED CAPITAL ACCOUNT WITH CURRENT ACCOUNT

As illustrated above where a capital account will remain fixed according to an agreement, a current account must be opened for each partner. It is debited with drawings, interest on drawings and credited with interest on capital, the share of profit and the partner’s salary.

PARTNERSHIP ACCOUNTS

However, there are instances where the partners in accordance with the partnership deed, maintain floating or fluctuating capital accounts.

FLOATING CAPITAL WITHOUT A CURRENT ACCOUNT

This is simply a combination or mixture of the capital and current accounts of each partner in a capital account hence such a capital account is referred to as “floating” or “fluctuating” because the balance can increase or decrease at any time depending on how much is paid in and how much is withdrawn.

PARTNERSHIP ACCOUNTS

READING ASSIGNMENT

Essential Financial Accounting by O.A. Longe  Page  249-251.

WEEKEND ASSIGNMENT

  1. Where there is no partnership agreement the Partnership Act 1890 section _______ should be applied  (a) 20  (b) 25  (c) 24  (d) 34
  2. Which of the following is not true where there is no laid down agreement for the partnership?  (a) Profits and losses are to be shared equally (b) No interest in drawings (c) No interest in capital (d) Members of the public can invest in the shares of the business.
  3. Which of the following increases the profit of a partnership? (a) Drawings (b) Interest on capital (c) Interest on drawings  (d) Partnership salary
  4. Which of the following statements is NOT true?  (a) When we keep fixed capital accounts for partners we open their current accounts  (b) When losses are made they are to be shared by the partners (c) When we keep floating capital accounts no current account is kept  (d) A partnership can exist forever.
  5. Which of the following can represent capital contributed by a partner to a partnership?  (a) Cash only (b) Cheques only (c) Cash and cheques only (d) Cash, cheque and other assets.

THEORY

  1. List the rules approved by the Partnership Act 1890 to be applied where there is no partnership agreement.
  2. Prepare the capital and current accounts of the following partners:-

N

Capital accounts      Obi                        50, 000 cr.

                             Oba                       20, 000 cr.

Interest in capital 5% p.a.

Salaries                  Obi                        5, 000

                             Oba                       6, 000

Interest in drawings 5%

Drawings                Obi                        2, 000

                             Oba                        1, 500                           

Current accounts balances b/f

                             Obi                        3, 000 cr.

                             Oba                            500 dr.

GENERAL EVALUATION

  1. Differentiate between accounting concepts and convention
  2. Explain four classifications of the cost found in manufacturing accounts
  3. State five reasons why a trial balance may not balance
  4. State five limitations of the Receipts and Payments Account
  5. Explain five events that may lead to the dissolution of a partnership