.Give the journal entries to be made in the books of the partnership firm ?
Answers
Answer:
Partners (or owners) can invest cash or other assets in their business.
...
Investing in a partnership.
Answer:
Skip to content
Logo for BCcampus Open Publishing
Toggle Menu
Search in book:
Search in book …
SEARCH
CONTENTS
PRINCIPLES OF ACCOUNTING, VOLUME 1: FINANCIAL ACCOUNTING
Partnership Accounting
92
Prepare Journal Entries to Record the Admission and Withdrawal of a Partner
So far we have demonstrated how to create a partnership, distribute the income or loss, and calculate income distributed at the end of the year after salaries have been paid. Acorn Lawn & Hardscapes has been doing well, but what if the opportunity arises to add another partner to handle more business? Or what happens if one partner wants to leave the partnership or sell his or her interest to someone else? This section will discuss those situations.
Admission of New Partner
There are two ways for a new partner to join a partnership. In both, a new partnership agreement should be drawn up because the existing partnership will come to an end.
The new partner can invest cash or other assets into an existing partnership while the current partners remain in the partnership.
The new partner can purchase all or part of the interest of a current partner, making payment directly to the partner and not to the partnership. If the new partner buys an existing partner’s entire interest, the existing partner leaves the partnership.
The new partner’s investment, share of ownership capital, and share of the net income or loss are all negotiated in the process of developing the new partnership agreement. Based on how a partner is admitted, oftentimes the admission can create a situation to be illustrated called a bonus to those in the partnership. A bonus is the difference between the value of a partner’s capital account and the cash payment made at the time of that partner’s or another partner’s withdrawal.
Admission of New Partner—No Bonus
Whenever a new partner is admitted to the partnership, a new capital account must be opened for him or her. This will allow the partnership to reflect the new members of the partnership.