| Partnership is defined as the relationship which | | | | the partners, certain rules laid down by the |
| exists between persons carrying on a business in | | | | partnership act are presumed to apply instead. |
| common with a view of profit. | | | | Residual profits are shared equally between |
| In other words, a partnership is an arrangement | | | | the partners |
| between two or more individuals in which they | | | | There are no partners' salaries |
| undertake to share the risks and rewards of a | | | | Partners receive no interest on the capital |
| joint business operations. | | | | they invest in the business |
| It is usual for a partnership to be established | | | | Partners are entitled to interest of 5% per |
| formally by means of a partnership agreement. | | | | annually on any loans they advance to the |
| However, if individuals act as though they are in | | | | business in excess of their agreed capital |
| partnership even if no written agreement exists, | | | | Difference between Partnership Accounts and |
| they it will be presumed in law that a partnership | | | | Sloe Trader Accounts |
| does exist and that its terms of agreement are | | | | Partnership accounts are identical in many |
| the same as those laid down in the partnership | | | | respects to the accounts of sole traders. |
| act 1890. | | | | The assets of a partnership are like the |
| The partnership agreement | | | | assets of any other business, and are accounted |
| The partnership agreement is a written | | | | for in the same way. The assets side of a |
| agreement in which the terms of the partnership | | | | partnership balance sheet is no different from |
| are set out, and in particular the financial | | | | what has been shown in earlier posts. |
| arrangements as between partners the items it | | | | The net profit of a partnership is calculated in |
| should cover include the following. | | | | the same way as the net profit of a sole trader. |
| Capital | | | | The only minor difference is that if a partner |
| Profit sharing ration | | | | makes a loan to the business as distinct from |
| Interest on capital | | | | capital contribution then interest on the loan will be |
| Partners salaries | | | | an expense in the profit and loss account, in the |
| Drawings | | | | same way as interest on any other loan from a |
| Guaranteed minimum profit shares | | | | person or organization who is not a partner. |
| In the absence of a formal agreement between | | | | |