PARTNERSHIP ACCOUNT

SECOND TERM SCHEME OF WORK FOR SS 2 FINANCIAL ACCOUNTING LESSON NOTE

SCHEME OF WORK WITH WEEKLY LESSON NOTES FOR SS 2 SECOND TERM FINANCIAL ACCOUNTING

WEEK 1 : REVISION

SUBJECT : FINANCIAL ACCOUNTING

CLASS : SS 2

TOPIC : PARTNERSHIP ACCOUNTS

WEEK 2 : PARTNERSHIP ACCOUNTS

PREVIOUS LESSON : FINANCIAL ACCOUNTING FIRST TERM EXAMINATION SS 2

Objectives: At the end of the lesson, students should be able

1. To understand the different types of partnerships in business.
2. To learn about the necessary double entry journal records of books of accounts for partnership.
3. To be able to apply the knowledge of partnership accounting in real-life situations.

Materials:

• Whiteboard and markers
• Handouts on types of partnership and double entry journal records
• Practice problems on types of partnership and double entry journal records
• Computer and projector for visual aids

CONTENT

INTRODUCTION

Partnership account is a type of accounting that deals with the financial transactions of a business that is owned by two or more individuals who share the profits and losses.

1. Sharing of profits and losses: Suppose John and Mary start a business together, and they agree to share the profits and losses equally. If the business makes a profit of ₦10,000, John and Mary will each receive ₦5,000. On the other hand, if the business incurs a loss of ₦5,000, John and Mary will each bear the loss of ₦2,500.
2. Capital contributions: In a partnership, each partner contributes capital to the business. For example, John contributes ₦20,000, and Mary contributes ₦30,000. The partnership account will show the total amount of capital contributed by each partner and the total capital of the partnership.
3. Drawings: Partners may also withdraw money from the business for personal use. These withdrawals are called drawings. For example, if John withdraws ₦2,000 and Mary withdraws ₦3,000, the partnership account will show the total amount of drawings made by each partner and the total amount of drawings made by the partnership.
4. Interest on capital: Partners may also earn interest on their capital contributions to the business. For example, if the partnership agreement specifies that partners will earn 5% interest on their capital, John will earn ₦1,000 interest on his ₦20,000 capital contribution, and Mary will earn ₦1,500 interest on her ₦30,000 capital contribution.
5. Profit and loss appropriation: At the end of the financial year, the partnership account will show the net profit or loss of the business. The partners will then decide how to distribute the profits or losses among themselves. This is known as profit and loss appropriation. For example, if the partnership makes a profit of ₦50,000, John and Mary may decide to distribute the profits equally or based on their agreed profit-sharing ratio

Evaluation

1. What is interest on capital? A) The amount of money partners pay to the business for using its capital. B) The amount of money partners receive for using their capital in the business. C) The amount of money partners owe to the business for using its capital. D) The amount of money partners withdraw from the business for personal use.
2. What is profit and loss appropriation? A) The process of distributing profits and losses among partners. B) The process of calculating profits and losses for the business. C) The process of withdrawing profits from the business. D) The process of investing profits back into the business.
3. What is a partnership agreement? A) An agreement between partners on how to share profits and losses. B) An agreement between partners on how to withdraw money from the business. C) An agreement between partners on how to invest money in the business. D) An agreement between partners on how to pay taxes.
4. What is a profit-sharing ratio? A) The percentage of ownership of each partner in the business. B) The percentage of profits each partner receives from the business. C) The percentage of losses each partner bears in the business. D) The percentage of capital each partner contributes to the business.
5. What is meant by the term “silent partner” in a partnership? A) A partner who does not contribute any capital to the business. B) A partner who does not participate in the day-to-day operations of the business. C) A partner who does not share in the profits and losses of the business. D) A partner who does not have any liability in the business.
6. What is a partnership return? A) A document that reports the partnership’s income, deductions, and credits for tax purposes. B) A document that reports the partnership’s profits and losses for the year. C) A document that reports the partnership’s capital contributions and drawings. D) A document that reports the partnership’s interest on capital
7. What is a partnership account? A) An account that deals with the financial transactions of a business that is owned by one individual. B) An account that deals with the financial transactions of a business that is owned by two or more individuals. C) An account that deals with the financial transactions of a non-profit organization. D) An account that deals with the financial transactions of a government agency.
8. In a partnership, how are profits and losses shared among partners? A) Equally among all partners. B) Based on the capital contributions of each partner. C) Based on the percentage of ownership of each partner. D) Based on the decision of the senior partner.
9. What is capital contribution? A) The amount of money partners withdraw from the business. B) The amount of money partners invest in the business. C) The amount of money partners owe to the business. D) The amount of money partners borrow from the business.
10. What is a drawing? A) The amount of money partners invest in the business. B) The amount of money partners owe to the business. C) The amount of money partners borrow from the business. D) The amount of money partners withdraw from the business for personal use.

Types of Partnership

A partnership is a type of business organization in which two or more people share ownership, profits, and losses. There are different types of partnerships that individuals can choose from based on their goals, interests, and the level of risk they are willing to take on. The different types of partnerships include:

1. General Partnership: This is the most common type of partnership in which all partners have equal rights and responsibilities in the business. This means that each partner is responsible for managing the business, sharing profits and losses, and paying taxes on their share of the income. For example, a group of friends may start a restaurant together and share the responsibilities and profits equally.
2. Limited Partnership: This type of partnership has both general partners and limited partners. The general partners have unlimited liability and are responsible for managing the business, while the limited partners have limited liability and do not participate in managing the business. Limited partners only contribute capital to the business and receive a share of the profits. For example, a group of investors may form a limited partnership to invest in real estate, with some investors taking on active roles as general partners, while others invest as limited partners.
3. Joint Venture: This type of partnership is formed for a specific project or purpose and has a limited duration. Each partner contributes resources to the project, and profits and losses are shared based on the agreed-upon terms. For example, two companies may form a joint venture to develop a new product or to undertake a construction project.
4. Limited Liability Partnership (LLP): This is a partnership where all partners have limited liability, and each partner is only responsible for their share of the business debts. LLPs are commonly used by professionals such as lawyers, accountants, and doctors. For example, a group of lawyers may form an LLP to share resources and limit their liability for malpractice claims.
5. Silent Partnership: This is a partnership in which one partner contributes capital to the business but does not participate in managing the business or making decisions. The silent partner only receives a share of the profits. For example, an investor may provide capital to a startup business but not participate in the day-to-day management of the company.

Partnerships come in various forms, and the choice of partnership depends on the goals, interests, and risk level of the partners involved. Whether it’s a general partnership, limited partnership, joint venture, LLP, or silent partnership, each type of partnership offers a different set of benefits and risks that must be carefully considered before entering into a partnership agreement

Evaluation

1. What is a joint venture? A) A partnership in which all partners have equal rights and responsibilities in the business. B) A partnership formed for a specific project or purpose and has a limited duration. C) A partnership in which there are both general partners and limited partners.
2. What is a limited liability partnership (LLP)? A) A partnership in which all partners have equal rights and responsibilities in the business. B) A partnership in which each partner has limited liability. C) A partnership formed for a specific project or purpose and has a limited duration.
3. What is a silent partnership? A) A partnership in which one partner provides all the capital for the business. B) A partnership in which one partner contributes capital to the business but does not participate in managing the business or making decisions. C) A partnership in which all partners have equal rights and responsibilities in the business.
4. In a limited partnership, who has unlimited liability? A) General partners B) Limited partners C) Both general and limited partners
5. What is the main difference between a general partnership and a limited partnership? A) In a general partnership, each partner has limited liability, while in a limited partnership, only the general partners have unlimited liability. B) In a general partnership, all partners have equal rights and responsibilities in the business, while in a limited partnership, there are both general partners and limited partners. C) In a general partnership, each partner provides capital to the business, while in a limited partnership, only the limited partners provide capital to the business.
6. What is the main difference between a joint venture and a general partnership? A) In a joint venture, the partnership is formed for a specific project or purpose and has a limited duration, while in a general partnership, the partnership is ongoing. B) In a joint venture, all partners have equal rights and responsibilities in the business, while in a general partnership, there are both general partners and limited partners. C) In a joint venture, each partner provides capital to the business, while in a general partnership, only the general partners provide capital to the business.
7. Which type of partnership is commonly used by professionals such as lawyers, accountants, and doctors? A) General partnership B) Limited partnership C) Limited liability partnership (LLP)
8. What is a partnership? A) A type of business organization in which one person owns and operates a business. B) A type of business organization in which two or more people share ownership, profits, and losses. C) A type of business organization in which one person provides capital to a business.
9. What is a general partnership? A) A partnership in which all partners have equal rights and responsibilities in the business. B) A partnership in which one partner provides all the capital for the business. C) A partnership in which each partner has limited liability.
10. What is a limited partnership? A) A partnership in which all partners have equal rights and responsibilities in the business. B) A partnership in which one partner provides all the capital for the business. C) A partnership in which there are both general partners and limited partners

Double entry journal records of books of accounts for partnership

1. Recording of capital contributions: When partners contribute capital to the business, the journal entry to record this transaction is a debit to the cash account and a credit to the capital account for each partner. For example, if Partner A contributes ₦50,000 to the business, the journal entry would be: Debit Cash ₦50,000, Credit Partner A’s Capital ₦50,000.
2. Recording of drawings: When partners withdraw money from the business for personal use, the journal entry to record this transaction is a debit to the partner’s drawings account and a credit to the cash account. For example, if Partner B withdraws ₦5,000 from the business, the journal entry would be: Debit Partner B’s Drawings ₦5,000, Credit Cash ₦5,000.
3. Recording of revenue or sales: When the business earns revenue or makes a sale, the journal entry to record this transaction is a debit to the cash or accounts receivable account and a credit to the sales revenue account. For example, if the business sells goods for ₦10,000, the journal entry would be: Debit Cash or Accounts Receivable ₦10,000, Credit Sales Revenue ₦10,000.
4. Recording of expenses: When the business incurs expenses, the journal entry to record this transaction is a debit to the appropriate expense account and a credit to the cash or accounts payable account. For example, if the business pays rent of ₦2,000, the journal entry would be: Debit Rent Expense ₦2,000, Credit Cash or Accounts Payable ₦2,000.
5. Recording of interest on capital: When partners earn interest on their capital contributions to the business, the journal entry to record this transaction is a debit to the interest expense account and a credit to the interest income account. For example, if the business earns ₦1,500 in interest on Partner A’s capital contribution, the journal entry would be: Debit Interest Expense ₦1,500, Credit Interest Income ₦1,500.
6. Recording of profit and loss appropriation: At the end of the financial year, the business’s net profit or loss is calculated, and the partners decide how to distribute the profits or losses among themselves. The journal entry to record this transaction is a debit to the income summary account and a credit to the partner’s capital accounts based on their profit-sharing ratio. For example, if the business makes a profit of ₦50,000, and Partner A and Partner B have a profit-sharing ratio of 3:2, the journal entry would be: Debit Income Summary ₦50,000, Credit Partner A’s Capital ₦30,000, Credit Partner B’s Capital ₦20,000.

The necessary double entry journal records of books of accounts for partnership include the recording of capital contributions, drawings, revenue or sales, expenses, interest on capital, and profit and loss appropriation. These journal entries help to ensure accurate financial reporting and provide a clear picture of the financial health of the business

A table that shows the necessary double entry journal records of books of accounts for partnership, along with the journal entry format:

Evaluation

1. What is a double entry journal record? A) A record that shows the financial transactions of a business. B) A record that shows the balance of all accounts in the business. C) A record that shows the profit and loss of a business. D) A record that shows the financial position of a business.
2. What is a capital contribution in partnership accounting? A) The amount of money partners withdraw from the business. B) The amount of money partners invest in the business. C) The amount of money partners owe to the business. D) The amount of money partners borrow from the business.
3. When a partner withdraws money from the business for personal use, what account is debited? A) Cash account B) Partner’s capital account C) Partner’s drawings account D) Sales revenue account
4. What account is credited when the business earns revenue or makes a sale? A) Cash account B) Partner’s capital account C) Sales revenue account D) Partner’s drawings account
5. What account is debited when the business incurs expenses? A) Cash account B) Partner’s capital account C) Expense account D) Sales revenue account
6. When partners earn interest on their capital contributions to the business, what account is credited? A) Interest expense account B) Interest income account C) Sales revenue account D) Partner’s capital account
7. What is a profit and loss appropriation? A) The process of distributing profits and losses among partners. B) The process of calculating profits and losses for the business. C) The process of withdrawing profits from the business. D) The process of investing profits back into the business.
8. When the business makes a profit, what account is debited in the profit and loss appropriation entry? A) Income summary account B) Cash account C) Sales revenue account D) Expense account
9. What account is credited in the profit and loss appropriation entry? A) Partner’s capital account B) Partner’s drawings account C) Sales revenue account D) Income summary account
10. What is the purpose of double entry journal records in partnership accounting? A) To show the financial position of the business. B) To show the financial transactions of the business. C) To show the profit and loss of the business. D) To show the balance of all accounts in the business.

Lesson Presentation

Introduction:

1. Begin by asking students if they have heard of partnerships before.
2. Explain that a partnership is a type of business organization where two or more individuals come together to run a business.
3. Explain that there are different types of partnerships, and each type has its own unique features and benefits.
4. Provide examples of partnerships, such as a law firm, a restaurant, or a construction company.

Body:

1. Explain the different types of partnerships, including general partnership, limited partnership, joint venture, limited liability partnership, and silent partnership.
2. Discuss the features and benefits of each type of partnership, and provide examples to help students understand.
3. Explain the necessary double entry journal records of books of accounts for partnership, including capital contributions, drawings, revenue or sales, expenses, interest on capital, and profit and loss appropriation.
4. Provide examples of journal entries for each type of transaction.
5. Allow time for students to practice solving problems related to partnership accounting.

Conclusion:

1. Summarize the key points covered in the lesson.
2. Review the different types of partnerships and the necessary double entry journal records of books of accounts for partnership.
3. Encourage students to apply the knowledge they have learned to real-life situations.
4. Provide additional resources for students to further explore the topic if they are interested.

Assessment:

1. Monitor students’ participation and engagement throughout the lesson.
2. Administer practice problems and quizzes to assess students’ understanding of the topic.
3. Provide feedback on students’ performance and address any areas of confusion or misunderstanding

Weekly Assessment /Test

1. What is a partnership?
2. What are the different types of partnerships?
3. What is a general partnership?
4. What is a limited partnership?
5. What is a joint venture?
6. What is a limited liability partnership (LLP)?
7. What is a silent partnership?
8. What is a capital contribution?
9. What are the necessary double entry journal records of books of accounts for partnership?
10. What is the purpose of double entry journal records in partnership accounting?