Legal Accounting

Partnership Accounting Problems

Ten Commandments: Generally Accepted Accounting Principles
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Money Measurement Concept: all transactions must be measurable in terms of money so that if the
transaction is not measurable in terms of money, it cannot be accounted for.
Entity concept: the business entity; we are not supposed to mix up our personal affairs with our
business affairs, i.e. expenses, business records. Thou shalt keep their business affairs separate
from personal affairs.
Going concern concept: As a business, you have to record transactions in terms of what it originally
cost you regardless of the market value.
Conservatism; Thou shalt be conservative in everything that they do; as to big amounts, the
account will choose the smaller one. Anticipate no profits and provide for all losses; ie. Recording
sale proceeds in the books when you have sold the property, providing for bad debts
Materiality: the accountant does not fool around, meddle or does not account for or book
transaction that is immaterial. He will only record transactions with financial significance; only
account for material items!
Consistency: the accountant is consistent, even in his errors he has to be consistent. Otherwise, it
will be difficult to analyze your progress, financial position, comparability of financial statements if
you keep changing your procedure. Besides, BIR is supposed to give permission/authority in writing
for changes in methods of accounting. Reasons for changes according to the BIR: a. that the
change was requested for a good or sound business purpose, not for avoiding/evading the taxes. In
the auditors certificate: In my opinion the foregoing financial statement was prepared in
accordance with generally accepted accounting principles applied on the basis consistent with that
of the preceding year. Word consistent is important. If not, the auditor will disclaim opinion on your
statements or express an adverse opinion.
Concept of cost: book all transactions at cost, and not at market values again.

Philippine Institute of Certified Public Accountants: committee that lays down accounting principles.
Partnership Accounting, different from single proprietorship accounting & corporation accounting: net
worth/present worth section in the balance sheet.
Balance Sheet and Statement of Profit and Loss
Left: Assets
Right: Liabilities, Equities
Dual Aspect Concept
For every action, there is a corresponding equal reaction
Partnership Accounting
Share of the partners (otherwise, everything is yours)
Statement of the profits and losses
Net profit: Revenues less cost & expenses
Net profit taxes
Distribution:

First method: if the partnership is quiet about the sharing of profits & losses, the rule is that they will share
profits and losses in accordance with their capital account
Second method: the moment the parties can come up with a contract whereby they expressly agree to split
the profits and losses equally, regardless of capital contributions
Third method: Pay the partners salaries first as a part of the general expense of the partnership, after which
the net profit after partners salaries are then distributed to the partners
Fourth method: first, allow interest on partners capital pay the partners their interest on their capital and
consider interest on capital as a cost of doing business, and the net profit after deducting partners interest
on partners capital can now be distriuted to the partners in proportion to whatever the agreement was
Partnership Accounting, different from single proprietorship accounting: only in the accounting for the capital
accounts.
Industrial partners share: no capital, just industry. Will not share in any loss but will share in the profits for a
designated amount. Profits distributed to him, if not withdrawn, becomes his capital or equity in the
partnership