Class 12 Accountancy - Partnership Basics
A partnership is the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all.
1. Partnership Deed
It is a written agreement. In its absence:
- Profit Sharing Ratio: Equal.
- Interest on Capital: Not allowed.
- Interest on Drawings: Not charged.
- Salary/Commission: Not paid to partners.
- Interest on Loan: Allowed @ 6% p.a.
2. Profit and Loss Appropriation A/c
This account is prepared to show the distribution of profits among partners.
- Credit Side: Net Profit (from P&L A/c), Interest on Drawings.
- Debit Side: Interest on Capital, Partner's Salary/Commission, Reserve.
3. Interest on Drawings (Average Period Method)
Formula: $\text{Total Drawings} \times \frac{\text{Rate}}{100} \times \frac{\text{Avg Period}}{12}$
| Situation | Average Period |
|---|---|
| Beginning of every month | 6.5 months |
| Middle of every month | 6 months |
| End of every month | 5.5 months |
4. Past Adjustments
Sometimes, errors occur (e.g., interest on capital omitted). We correct them by passing a Single Adjustment Entry instead of rewriting the accounts.
Tip: Always check if the question says "Charge against profit" or "Appropriation of profit". Rent to a partner is a charge! 💼📊
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