1 / 10

ACTG 2110

ACTG 2110. Chapter 12 – Accounting for Partnerships and Limited Liability Companies. Characteristics. Proprietorship Parthership Written agreement This is a must. Should state at a minimum how profit AND losses will be shared.

arwen
Download Presentation

ACTG 2110

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. ACTG 2110 Chapter 12 – Accounting for Partnerships and Limited Liability Companies

  2. Characteristics • Proprietorship • Parthership • Written agreement • This is a must. • Should state at a minimum how profit AND losses will be shared. • Should have this agreement even if you are starting a partnership with a trusted friend!!!! • Limited life • Partnership dissolves when a new partner enters or an old partner leaves

  3. Characteristics • Partnership (continued) • Mutual Agency • All partners are bound by the business decisions of any partner • Unlimited Personal Liability • All partners personal assets can be used by the partnership to settle the business debts • Co-ownership of Partnership Assets • All partners own the partnership assets, no matter who contributed them

  4. Characteristics • Partnerships (continued) • Participation in income • Individuals are taxed for business profits, not the partnership business. • Ease of Formation • It is very easy to start a partnership • Little or no regulations • Partner’s Equity Accounts • Each partner has a capital account • Each partner has a withdrawal account

  5. Characteristics • Limited Liability Companies (LLCs) • Limited liability • Mutual agency may be limited • Can have continuous life even if “members” change • Can still be a nontaxable entity • Must file articles of incorporation with state government (like corporations)

  6. Formation of a Partnership • Valuation of Assets Contributed by Partners • The fair market value of assets contributed to the business is placed on the books, not the book value • Each partner’s capital account is credited for each one’s contribution.

  7. Accounting for Partnership Profits and Losses • Factors to consider • Investment • Time spent in business • Expertise • Common methods of division • Stated fraction • By investment • By service to organization • Any combination of the above factors

  8. Accounting for Partnership Profits and Losses • If the written partnership agreement is silent on profit and losses (or there is no agreement), profits and losses are shared equally

  9. Accounting for Changing Partnerships • Admitting a New Partner • Outside Purchase (off the books-just change capital account names) • Investing Directly into the Partnership • Withdrawal of a Partner • Selling an interest to an outsider (off the books-just change capital account names) • Selling an interest to the other partners • Liquidation of the Partnership

  10. Additional Topics • Statement of partners’ capital • Lists each partner’s beginning balance + investments + profit share – loss share – withdrawals • Financial Analysis and Interpretation • Revenue per employee = Total Revenue • Total number of employees • Allows for comparison across firms and years

More Related