1. ACCOUNTING FOR PARTNERSHIPS
CHAPTER TWENTY-ONE
ACCOUNTING FOR PARTNERSHIPS

2. PARTNERSHIP
Def. - “..an association of two or more persons who carry on, as co-owners, a business for profit”
Used for all types of enterprises
More popular in service industry than merchandising businesses

3. PARTNERSHIP AGREEMENT
Def. - a written agreement containing the provisions for operating a partnership.
Essential provisions include:
Date of the agreement
Names of the partners
Kind of business to be conducted
Length of time the partnership is to run
Name and location of the business
Investment of each partner
Basis on which profits and losses are to be shared
Limitation of partners’ rights and activities
Salary allowance to partners
Division of assets upon dissolution of the partnership
Signatures of the partners

4. CO-OWNERSHIP OF ASSETS combined into one enterprise
CHARACTERISTICS
CO-OWNERSHIP OF ASSETS
All assets held by a partnership are co-owned by all partners. If one partner contributes an asset to the business, the asset is jointly owned by all partners.
Advantages:
Ability and expertise
combined into one enterprise
& easier to raise capital

5. Serious consequences if partners don’t act responsibly
CHARACTERISTICS
MUTUAL AGENCY
Any partner can bind the other partners to a contract if he or she is acting within the general scope of the business.
Disadvantage:
Serious consequences if
partners don’t act responsibly

6. CHARACTERISTICS LIMITED LIFE
Partnership may be dissolved as the result of any change in the ownership. (e.g. death, bankruptcy, incapacity, withdrawal of a partner, addition of a new partner, or expiration of the time specified in the partnership agreement)

7. CHARACTERISTICS UNLIMITED LIABILITY
Each partner is personally liable for ALL debts incurred by the partnership.
Major Disadvantage:
A partner could lose
personal assets.

8. CHARACTERISTICS FEDERAL INCOME TAXES
Partnership is not subject to federal income tax. But, partners must report their share of the partnership’s income on their income tax return.

9. INVESTMENTS Let’s look at the journal entry!
EXAMPLE: Sam Mitchell and Lisa Jenkins begin the Mitchell & Jenkins partnership by investing $350,000 and $200,000, respectively.
Let’s look at the
journal entry!

10. Separate Capital and Drawing accounts are maintained for each partner.
GENERAL JOURNAL
DATE
DESCRIPTION
DEBIT PR
CREDIT 1
Cash
350,000 2
Sam Mitchell, Capital
350,000 3
S. Mitchell invested 4
$350,000 in cash 5 6
Cash
200,000 7
Lisa Jenkins, Capital
200,000 8
Separate Capital and Drawing accounts
are maintained for each partner.
L. Jenkins invested 9
$200,000 in cash 10 11

11. INVESTMENTS
What if instead of $200,000 in cash, Lisa Jenkins had invested:
Inventory valued at $47,500
on which $10,500 was owed
Office Equipment valued at $40,000
Delivery Equipment valued at $92,000
on which $19,000 was owed on a note
$50,000 in cash

12. GENERAL JOURNAL Each asset invested and liability assumed
DATE
DESCRIPTION
DEBIT PR
CREDIT 1
Cash
50,000 2
Inventory
47,500 3
Office Equipment
40,000 4
Delivery Equipment
92,000 5
Notes Payable
19,000 6
Accounts Payable
10,500 7
Lisa Jenkins, Capital
200,000 8
Each asset invested and liability assumed
is recorded. The difference is credited
to the Capital account. 9 10 11

13. COMBINING BUSINESSES
On April 1, Donna Morning and Larry Knight form a partnership under the firm name of Morning & Knight Sports.
They agree to invest their assets in the partnership. The partnership will also assume the liabilities shown on their balance sheets.
Profits/losses are to be shared
In the case of dissolution, assets are to be distributed between partners in the ratio of their capital interests at the time of dissolution.

14. COMBINING BUSINESSES Let’s look at the journal entry
Morning Sports
Balance Sheet
March 31, 20--
Assets
Liabilities
Cash
$ 6,344
Notes Payable
$ 4,600
Accts. Receivable
$ 5,524
Accounts Payable
9,082
Less Allow for
Total Liabilities
$ 13,682
Bad debts
430
5,094
Let’s look at the journal entry
to record Donna Morning’s
investment in the new partnership.
Merchandise Inv
24,574
Store Equipment
$3,840
Owner’s Equity
Less Accum Depr
1,000
2,840
Morning, Capital
25,170
Total Assets
$38,852
Total Liab & O.E.
$38,852

15. GENERAL JOURNAL Any uncollectible accounts should
DATE
DESCRIPTION
DEBIT PR
CREDIT 1
Cash
6,344 2
Accounts Receivable
5,524 3 4
Any uncollectible accounts should
be written off before forming
the partnership….
Morning Sports had no
accounts considered uncollectible. 5 6 7 8 9 10 11

16. the Merchandise Inventory account reflects current market values.
GENERAL JOURNAL
DATE
DESCRIPTION
DEBIT PR
CREDIT 1
Cash
6,344 2
Accounts Receivable
5,524 3
Merchandise Inventory
24,574 4 5
Since Donna uses FIFO,
the Merchandise Inventory account
reflects current market values. 6 7 8 9 10 11

17. GENERAL JOURNAL Assets are recorded at their
DATE
DESCRIPTION
DEBIT PR
CREDIT 1
Cash
6,344 2
Accounts Receivable
5,524 3
Merchandise Inventory
24,574 4
Store Equipment
3,600 5 6
Assets are recorded at their
fair market values (not book values)
at the time of investment. 7 8 9 10 11

18. GENERAL JOURNAL The allowance account and the liabilities
DATE
DESCRIPTION
DEBIT PR
CREDIT 1
Cash
6,344 2
Accounts Receivable
5,524 3
Merchandise Inventory
24,574 4
Store Equipment
3,600 5
Allowance for Bad Debts
430 6
Notes Payable
4,600 7
Accounts Payable
9,082 8
The allowance account and the liabilities
are recorded at the values shown
on Morning Sports’ Balance Sheet. 9 10 11

19. GENERAL JOURNAL Capital account is credited for the
DATE
DESCRIPTION
DEBIT PR
CREDIT 1
Cash
6,344 2
Accounts Receivable
5,524 3
Merchandise Inventory
24,574 4
Store Equipment
3,600 5
Allowance for Bad Debts
430 6
Notes Payable
4,600 7
Accounts Payable
9,082 8
D. Morning, Capital
25,930 9
Capital account is credited for the
difference between assets
invested and liabilities assumed. 10 11

20. liabilities are brought into
COMBINING BUSINESSES
Knight Athletics
Balance Sheet
March 31, 20--
Assets
Liabilities
Cash
$ 3,544
Notes Payable
$ 6,000
Accts. Receivable
$ 5,280
Accounts Payable
13,238
Less Allow for
Total Liabilities
$ 19,238
Bad debts
720
4,560
Knight’s assets and
liabilities are brought into
the new partnership.
Merchandise Inv
29,692
Supplies
720
Office Equipment
$ 4,320
Less Accum Depr
1,100
3,220
Store Equipment
$ 4,800
Owner’s Equity
Less Accum Depr
1,200
3,600
Knight, Capital
25,644
$44,902
$44,902
Total Assets
Total Liab & O.E.

21. GENERAL JOURNAL DATE DESCRIPTION DEBIT PR CREDIT 1 Cash 3,544 2
Accounts Receivable
5,280 3
Merchandise Inventory
29,692 4
Supplies
286 5
Office Equipment
3,850 6
Store Equipment
4,200 7
Allowance for Bad Debts
720 8
Notes Payable
6,000 9
Accounts Payable
13,238 10
L. Knight, Capital
26,894 11

22. ALLOCATING PROFIT/LOSS
Example: The partnership of Mitchell and Jenkins earned net income of $190,800 for the year.
S. Mitchell
L. Jenkins
$95,400
$95,400
If Mitchell and Jenkins had not
specified how the income was to be
split, it would be split evenly.

23. PARTNERSHIP CLOSING ENTRIES
FOUR ENTRIES:
Close all revenues to Income Summary
Close all expenses to Income Summary
Close Income Summary by allocating each partner’s share of net income or loss to the individual capital accounts
Close each partner’s drawing account to the individual capital accounts.
Entries #1 & 2 are the same as for sole proprietorships.
Entries #3 & 4 are different for partnerships.

24. GENERAL JOURNAL Instead of all the net income being
DATE
DESCRIPTION
DEBIT PR
CREDIT 1
Closing Entry #3 2
Income Summary
190,800 3
S. Mitchell, Capital
95,400 4
L. Jenkins, Capital
95,400 5
Instead of all the net income being
credited to one capital account…
it is allocated to each partner’s
capital account. 6 7 8 9 10 11

25. GENERAL JOURNAL DATE DESCRIPTION DEBIT PR CREDIT 1 Closing Entry #3 2
Income Summary
190,800 3
S. Mitchell, Capital
95,400 4
L. Jenkins, Capital
95,400 5 6
S. Mitchell, Capital
36,000 7
S. Mitchell, Drawing
36,000 8 9
L. Jenkins, Capital
48,000 10
L. Jenkins, Drawing
48,000 11

26. ALLOCATING PROFIT/LOSS
Example: The partnership of Mitchell and Jenkins earned net income of $190,800 for the year.
S. Mitchell
L. Jenkins
Mitchell and Jenkins did specify
how the income was to be split...
after salary allowances, the remaining
net income was to be split

27. ALLOCATING PROFIT/LOSS
Example: The partnership of Mitchell and Jenkins earned net income of $190,800 for the year.
S. Mitchell
L. Jenkins
$36,000
Salary allowances
$48,000
Salary allowances total $84,000.
Remaining Net Income is $106,800
($190,800-$84,000).

28. ALLOCATING PROFIT/LOSS
Example: The partnership of Mitchell and Jenkins earned net income of $190,800 for the year.
S. Mitchell
L. Jenkins
$36,000
Salary allowances
$48,000
64,080
$106,800 x 60% = $64,080

29. ALLOCATING PROFIT/LOSS
Example: The partnership of Mitchell and Jenkins earned net income of $190,800 for the year.
S. Mitchell
L. Jenkins
$36,000
Salary allowances
$48,000
64,080
Remaining Income
42,720
$106,800 x 40% = $42,720

30. ALLOCATING PROFIT/LOSS
Example: The partnership of Mitchell and Jenkins earned net income of $190,800 for the year.
S. Mitchell
L. Jenkins
$36,000
Salary allowances
$48,000
64,080
Remaining Income
42,720
$100,080
$90,720

31. Closing entry is made for the total allocated to each
GENERAL JOURNAL
DATE
DESCRIPTION
DEBIT PR
CREDIT 1
Income Summary
190,800 2
S. Mitchell, Capital
100,080 3
L. Jenkins, Capital
90,720 4 5
Closing entry is made for
the total allocated to each
partner. 6 7 8 9 10 11

32. GENERAL JOURNAL Close each owner’s drawing account DATE DESCRIPTION
DEBIT PR
CREDIT 1
Income Summary
190,800 2
S. Mitchell, Capital
100,080 3
L. Jenkins, Capital
90,720 4 5
S. Mitchell, Capital
36,000 6
S. Mitchell, Drawing
36,000 7 8
L. Jenkins, Capital
48,000 9
L. Jenkins, Drawing
48,000 10 11

33. ALLOCATING PROFIT/LOSS
Example: Let’s look at the allocation if the partnership of Mitchell and Jenkins earned net income of $44,000 for the year.
S. Mitchell
L. Jenkins
$36,000
Salary allowances
$48,000
The salary allowances
alone total more
than the Net Income!

34. ALLOCATING PROFIT/LOSS
Example: Let’s look at the allocation if the partnership of Mitchell and Jenkins earned net income of $44,000 for the year.
S. Mitchell
L. Jenkins
$36,000
Salary allowances
$48,000
$84,000
Salary Allow.
- 44,000
Net Income
$40,000
Excess to be absorbed by partners

35. ALLOCATING PROFIT/LOSS
Example: Let’s look at the allocation if the partnership of Mitchell and Jenkins earned net income of $44,000 for the year.
S. Mitchell
L. Jenkins
$36,000
Salary allowances
$48,000
(24,000)
$40,000 x 60%

36. ALLOCATING PROFIT/LOSS
Example: Let’s look at the allocation if the partnership of Mitchell and Jenkins earned net income of $44,000 for the year.
S. Mitchell
L. Jenkins
$36,000
Salary allowances
$48,000
(24,000)
(16,000)
$40,000 x 40%

37. ALLOCATING PROFIT/LOSS
Example: Let’s look at the allocation if the partnership of Mitchell and Jenkins earned net income of $44,000 for the year.
S. Mitchell
L. Jenkins
$36,000
Salary allowances
$48,000
(24,000)
(16,000)
$12,000
$32,000
$12,000 + $32,000 =
$44,000 Net Income

38. Entries to close the drawing the same as the previous example.
GENERAL JOURNAL
DATE
DESCRIPTION
DEBIT PR
CREDIT 1
Income Summary
44,000 2
S. Mitchell, Capital
12,000 3
L. Jenkins, Capital
32,000 4 5
Entries to close the drawing
accounts would be
the same as the previous example. 6 7 8 9 10 11

39. ALLOCATING PROFIT/LOSS
Example: B. K. Kelly and S. B. Arthur form a partnership on January 1 of the current year. Kelly will devote full time to operating the business, invest $50,000, and draw a salary of $35,000 per year. Arthur will devote about 10 hours per week, invest $150,000, and draw a salary of $10,000 per year. The partners will be allowed interest of 10% on capital balances on January 1 of each year and the balance of the earnings will be divided equally.
Let’s allocate the first year
Net Income of $80,000.

40. ALLOCATING PROFIT/LOSS
B. K. Kelly
S. B. Arthur
$35,000
$10,000
Salary Allow.
5,000
Interest Allow.
Kelly had a capital balance
of $50,000 on January 1.
$50,000 x 10%

41. ALLOCATING PROFIT/LOSS
B. K. Kelly
S. B. Arthur
$35,000
$10,000
Salary Allow.
5,000
15,000
Interest Allow.
Arthur had a capital balance
of $150,000 on January 1.
$150,000 x 10%

42. ALLOCATING PROFIT/LOSS
B. K. Kelly
S. B. Arthur
$35,000
$10,000
Salary Allow.
5,000
15,000
Interest Allow.
7,500
7,500
Remaining Income
Kelly has allowances of $40,000 so far
Arthur has $25,000 so far…
$80,000 - $65,000 = $15,000 remaining
Split evenly = $7,500 each

43. ALLOCATING PROFIT/LOSS
B. K. Kelly
S. B. Arthur
$35,000
$10,000
Salary Allow.
5,000
15,000
Interest Allow.
7,500
7,500
Remaining Income
$47,500
$32,500
What if the partnership had
a loss of $20,000 in the first year?

44. ALLOCATING PROFIT/LOSS
B. K. Kelly
S. B. Arthur
$35,000
$10,000
Salary Allow.
5,000
15,000
Interest Allow.
Salary and Interest allowances
would still be given, totaling $65,000.

45. ALLOCATING PROFIT/LOSS
B. K. Kelly
S. B. Arthur
$35,000
$10,000
Salary Allow.
5,000
15,000
Interest Allow.
(42,500)
(42,500)
$(2,500)
$(17,500)
The allowances plus the loss
leave $85,000 to be absorbed
equally.

46. GENERAL JOURNAL Capital accounts are reduced this year. DATE
DESCRIPTION
DEBIT PR
CREDIT 1
B. K. Kelly, Capital
2,500 2
S. B. Arthur, Capital
17,500 3
Income Summary
20,000 4 5
Capital accounts are
reduced this year. 6 7 8 9 10 11

47. PARTNERSHIP FINANCIAL STATEMENTS
The allocation of net income and its impact on the capital balances should be disclosed in the financial statements.

48. FINANCIAL STATEMENTS Distribution of income is shown at
Kelly and Arthur
Income Statement (Partial)
For Year Ended December 31, 20--
Distribution of income is shown at
the bottom of the Income Statement.
Net Income
$80,000
Kelly
Arthur
Total
Allocation of net income:
Salary allowances
$35,000
$10,000
$45,000
Interest allowances
5,000
15,000
20,000
Remaining income
7,500
7,500
15,000
Allocation of net income
$47,500
$32,500
$80,000

49. Statement of Partners’ Equity For Year Ended December 31, 20--
FINANCIAL STATEMENTS
Replaces
Statement of
Owner’s
Equity
Kelly and Arthur
Statement of Partners’ Equity
For Year Ended December 31, 20--
Kelly
Arthur
Total
Capital, January 1, 20--
$50,000
$150,000
$200,000
Additional Investments during year
10,000
10,000
$50,000
$160,000
$210,000
Net Income for the year
47,500
32,500
80,000
$97,500
$192,500
$290,000
Withdrawals (salaries during the year)
35,000
10,000
45,000
Capital, December 31, 20--
$62,500
$182,500
$245,000

50. Balance Sheet (Partial)
FINANCIAL STATEMENTS
Kelly and Arthur
Balance Sheet (Partial)
December 31, 20--
Partners’ Equity
B. K. Kelly, capital
$ 62,500
S. B. Arthur, capital
182,500
Total partners’ equity
$245,000
Owner’s Equity is now
Partners’ Equity

51. DISSOLUTION
Any change in the members of the partnership results in dissolution.
Does not imply that business operations will halt
New Partnership agreement is created
Can be caused by:
Admitting a new partner
Death or withdrawal of a partner
Bankruptcy

52. ADMITTING A NEW PARTNER
A new partner may buy into the business in three ways:
by purchasing an interest directly from existing partners
by making a cash investment in the business
by contributing assets from an existing business

53. ADMITTING A NEW PARTNER
Example: Morning and Knight admit Sunny Noon as a new partner as of July 1, 20--, when Morning and Knight have capital interests of $30,000 and $20,000, respectively. Noon pays $12,000 to Morning for one-third of her interest and $12,000 to Knight for one-half of his interest.
The payments go to the partners
directly, not the business.

54. ADMITTING A NEW PARTNER
Example: Morning and Knight admit Sunny Noon as a new partner as of July 1, 20--, when Morning and Knight have capital interests of $30,000 and $20,000, respectively. Noon pays $12,000 to Morning for one-third of her interest and $12,000 to Knight for one-half of his interest.
Morning, Capital x
1/3
$30,000 x
1/3
Noon buys $10,000 of
Morning’s equity.

55. ADMITTING A NEW PARTNER
Example: Morning and Knight admit Sunny Noon as a new partner as of July 1, 20--, when Morning and Knight have capital interests of $30,000 and $20,000, respectively. Noon pays $12,000 to Morning for one-third of her interest and $12,000 to Knight for one-half of his interest.
Knight, Capital x
1/2
$20,000 x
1/2
Noon buys $10,000 of
Knight’s equity.

56. Donna’s Capital account is reduced by the amount sold to Sunny Noon.
GENERAL JOURNAL
DATE
DESCRIPTION
DEBIT PR
CREDIT
20-- 1
July 1
Donna Morning, Capital
10,000 2 3 4 5
Donna’s Capital account is reduced
by the amount sold to Sunny Noon. 6 7 8 9 10 11

57. GENERAL JOURNAL Larry’s Capital account is reduced by the 1/2 interest
DATE
DESCRIPTION
DEBIT PR
CREDIT
20-- 1
July 1
Donna Morning, Capital
10,000 2
Larry Knight, Capital
10,000 3
Sunny Noon, Capital
20,000 4 5
Larry’s Capital account
is reduced by the 1/2 interest
he sold to Sunny.
A Capital account is created for Sunny. 6 7 8 9 10 11

58. partner is not recorded on the partnership books.
GENERAL JOURNAL
DATE
DESCRIPTION
DEBIT PR
CREDIT
20-- 1
July 1
Donna Morning, Capital
10,000 2
Larry Knight, Capital
10,000 3
Sunny Noon, Capital
20,000 4 5
The $12,000 paid to each
partner is not recorded
on the partnership books. 6 7 8 9 10 11

59. directly to the partnership…..
GENERAL JOURNAL
DATE
DESCRIPTION
DEBIT PR
CREDIT
20-- 1
July 1
Cash
25,000 2
Sunny Noon, Capital
25,000 3 4 5
If Sunny had paid $25,000
directly to the partnership….. 6 7 8 9 10 11

60. ADMITTING A NEW PARTNER
Sunny Noon’s Golf
Balance Sheet
June 30, 20--
Assets
Liabilities
Cash
$ 5,000
Notes Payable
$ 9,048
Accts. Receivable
$ 14,290
Accounts Payable
7,550
Less Allow for
Total Liabilities
$16,598
Bad debts
1,078
13,212
Merchandise Inv
27,290
Owner’s Equity
Noon, Capital
28,904
If Sunny has a business that the
new partnership will take over...
Total Assets
$45,502
Total Liab & O.E.
$45,502

61. GENERAL JOURNAL No adjustment necessary since Noon has no knowledge
DATE
DESCRIPTION
DEBIT PR
CREDIT
20-- 1
July 1
Cash
5,000 2
Accounts Receivable
14,290 3 4 5
No adjustment necessary
since Noon has no knowledge
of any uncollectible accounts. 6 7 8 9 10 11

62. No adjustment necessary
GENERAL JOURNAL
DATE
DESCRIPTION
DEBIT PR
CREDIT
20-- 1
July 1
Cash
5,000 2
Accounts Receivable
14,290 3
Merchandise Inventory
27,290 4 5 6
No adjustment necessary
since Noon has been
using the FIFO method. 7 8 9 10 11

63. GENERAL JOURNAL DATE DESCRIPTION DEBIT PR CREDIT 20-- 1 July 1 Cash
5,000 2
Accounts Receivable
14,290 3
Merchandise Inventory
27,290 4
Allowance for Bad Debts
1,078 5
Notes Payable
9,048 6
Accounts Payable
7,550 7
Sunny Noon, Capital
28,904 8 9 10 11

64. WITHDRAWAL OF A PARTNER
A partner may retire and withdraw assets equal to, less than, or greater than the amount of his or her interest in the partnership.
determined after all profits and losses are allocated
and books are closed

65. WITHDRAWAL OF A PARTNER
Example: Many years later Sunny Noon decides to retire. The partners have agreed to the withdrawal of cash equal to the amount of Noon’s equity in the assets of the partnership.
Capital account balances:
Donna Morning
$55,000
Sunny Noon
40,000
20,000
Larry Knight
Sunny Noon will take home
$40,000 cash.

66. Her capital account is closed out.
GENERAL JOURNAL
DATE
DESCRIPTION
DEBIT PR
CREDIT 1
Sunny Noon, Capital
40,000 2 3 4 5
Her capital account is closed out. 6 7 8 9 10 11

67. The other capital accounts
GENERAL JOURNAL
DATE
DESCRIPTION
DEBIT PR
CREDIT 1
Sunny Noon, Capital
40,000 2
Cash
40,000 3 4 5
The other capital accounts
are not affected. 6 7 8 9 10 11

68. GENERAL JOURNAL What if Sunny agrees to only $30,000 cash? DATE
DESCRIPTION
DEBIT PR
CREDIT 1
Sunny Noon, Capital
40,000 2
Cash
40,000 3 4 5
What if Sunny agrees
to only $30,000 cash? 6 7 8 9 10 11

69. Sunny’s capital account
GENERAL JOURNAL
DATE
DESCRIPTION
DEBIT PR
CREDIT 1
Sunny Noon, Capital
40,000 2 3 4 5
Sunny’s capital account
is closed out. 6 7 8 9 10 11

70. GENERAL JOURNAL But Cash received is less than the capital balance…
DATE
DESCRIPTION
DEBIT PR
CREDIT 1
Sunny Noon, Capital
40,000 2
Cash
30,000 3 4
But Cash received is less
than the capital balance…
difference is split between two
remaining partners. 5 6 7 8 9 10 11

71. She received 55% of the $10,000 difference.
GENERAL JOURNAL
DATE
DESCRIPTION
DEBIT PR
CREDIT 1
Sunny Noon, Capital
40,000 2
Cash
30,000 3
Donna Morning, Capital
5,500 4 5 6
Remaining capital = $100,000
($55,000 + $45,000)
Morning has 55% interest
She received 55% of the $10,000 difference. 7 8 9 10 11

72. Larry receives 45% of the difference.
GENERAL JOURNAL
DATE
DESCRIPTION
DEBIT PR
CREDIT 1
Sunny Noon, Capital
40,000 2
Cash
30,000 3
Donna Morning, Capital
5,500 4
Larry Knight, Capital
4,500 5 6
Larry receives 45% of the difference. 7 8 9 10 11

73. ($5,000 more than her capital balance)
GENERAL JOURNAL
DATE
DESCRIPTION
DEBIT PR
CREDIT 1
Sunny Noon, Capital
40,000 2
Cash
30,000 3
Donna Morning, Capital
5,500 4
Larry Knight, Capital
4,500 5 6
If Noon received $45,000 cash
($5,000 more than her capital balance) 7 8 9 10 11

74. GENERAL JOURNAL The remaining partners contribute
DATE
DESCRIPTION
DEBIT PR
CREDIT 1
Sunny Noon, Capital
40,000 2
Donna Morning, Capital
2,750 3
Larry Knight, Capital
2,250 4
Cash
45,000 5 6
The remaining partners contribute
their capital to make the $5,000 difference. 7 8 9 10 11

75. Sunny sells her interest in the business to Donna.
GENERAL JOURNAL
DATE
DESCRIPTION
DEBIT PR
CREDIT 1
Sunny Noon, Capital
40,000 2
Donna Morning, Capital
2,750 3
Larry Knight, Capital
2,250 4
Cash
45,000 5 6
One last alternative…..
Sunny sells her interest
in the business to Donna. 7 8 9 10 11

76. GENERAL JOURNAL DATE DESCRIPTION DEBIT PR CREDIT 1 Sunny Noon, Capital
40,000 2
Donna Morning, Capital
40,000 3 4 5 6 7 8 9 10 11

77. LIQUIDATION OF A PARTNERSHIP
Assets are sold
Liabilities are paid
Remaining cash and assets are distributed to the partners

78. LIQUIDATION OF A PARTNERSHIP
Example: After many years of operations the partnership is to be liquidated. After closing entries the following accounts remain:
Cash
$ 10,000
Non-Cash
Assets are
sold for
$370,000.
Inventory
120,000
Other Assets
220,000
80,000
Liabilities
D. Morning, Capital
95,000
120,000
L. Knight, Capital
S. Noon, Capital
55,000

79. GENERAL JOURNAL DATE DESCRIPTION DEBIT PR CREDIT 1 Cash 370,000 2
Inventory
120,000 3
Other Assets
220,000 4
Gain on Sale of Assets
30,000 5 6 7 8 9 10 11

80. GENERAL JOURNAL Gain is shared equally by the partners. DATE
DESCRIPTION
DEBIT PR
CREDIT
Gain is shared equally
by the partners. 1
Cash
370,000 2
Inventory
120,000 3
Other Assets
220,000 4
Gain on Sale of Assets
30,000 5 6
Gain on Sale of Assets
30,000 7
D. Morning, Capital
10,000 8
L. Knight, Capital
10,000 9
S. Noon, Capital
10,000 10 11

81. LIQUIDATION OF A PARTNERSHIP
Example: After many years of operations the partnership is to be liquidated. After closing entries the following accounts remain:
Cash
$380,000
Inventory
Other Assets
Cash is now $380,000 ($10,000 + $370,000),
Inventory and Other Assets are now zero.

82. LIQUIDATION OF A PARTNERSHIP
Example: After many years of operations the partnership is to be liquidated. After closing entries the following accounts remain:
Cash
$380,000
Inventory
Other Assets
95,000+10,000
80,000
Liabilities
D. Morning, Capital
105,000

83. LIQUIDATION OF A PARTNERSHIP
Example: After many years of operations the partnership is to be liquidated. After closing entries the following accounts remain:
Cash
$380,000
Inventory
Other Assets
80,000
Liabilities
120,000+10,000
D. Morning, Capital
105,000
130,000
L. Knight, Capital

84. LIQUIDATION OF A PARTNERSHIP
Example: After many years of operations the partnership is to be liquidated. After closing entries the following accounts remain:
Cash
$380,000
Liabilities
are paid
off.
Inventory
Other Assets
80,000
Liabilities
D. Morning, Capital
105,000
55,000+10,000
130,000
L. Knight, Capital
S. Noon, Capital
65,000

85. GENERAL JOURNAL DATE DESCRIPTION DEBIT PR CREDIT 1 Liabilities 80,0002
Cash
80,000 3 4 5 6 7 8 9 10 11

86. LIQUIDATION OF A PARTNERSHIP
Example: After many years of operations the partnership is to be liquidated. After closing entries the following accounts remain:
Cash
$300,000
Inventory
Other Assets
Liabilities
D. Morning, Capital
105,000
130,000
L. Knight, Capital
S. Noon, Capital
65,000
Remaining Cash = Capital account balances
Cash is distributed to partners.

87. GENERAL JOURNAL DATE DESCRIPTION DEBIT PR CREDIT 1 D. Morning, Capital
105,000 2
L. Knight, Capital
130,000 3
S. Noon, Capital
65,000 4
Cash
300,000 5 6 7 8 9 10 11

88. LIQUIDATION OF A PARTNERSHIP
Example: After many years of operations the partnership is to be liquidated. After closing entries the following accounts remain:
Cash $
Inventory
Other Assets
Liabilities
D. Morning, Capital
L. Knight, Capital
S. Noon, Capital
Partnership is liquidated!

89. LIQUIDATION OF A PARTNERSHIP
Example: After many years of operations the partnership is to be liquidated. After closing entries the following accounts remain:
Cash
$ 10,000
If these
Assets had
been sold
for only
$295,000
Inventory
120,000
Other Assets
220,000
80,000
Liabilities
D. Morning, Capital
95,000
120,000
L. Knight, Capital
S. Noon, Capital
55,000

90. allocated to the partners.
GENERAL JOURNAL
DATE
DESCRIPTION
DEBIT PR
CREDIT 1
Cash
295,000 2
Loss on Sale of Assets
45,000 3
Inventory
120,000 4
Other Assets
220,000 5
There is a $45,000 loss to be
allocated to the partners. 6 7 8 9 10 11

91. GENERAL JOURNAL DATE DESCRIPTION DEBIT PR CREDIT 1 Cash 295,000 2
Loss on Sale of Assets
45,000 3
Inventory
120,000 4
Other Assets
220,000 5 6
D. Morning, Capital
15,000 7
L. Knight, Capital
15,000 8
S. Noon, Capital
15,000 9
Loss on Sale of Assets
45,000 10 11

92. LIQUIDATION OF A PARTNERSHIP
Example: After many years of operations the partnership is to be liquidated. After closing entries the following accounts remain:
Cash
$ 305,000
Liabilities
are paid
off.
Inventory
Other Assets
80,000
Liabilities
D. Morning, Capital
80,000
105,000
L. Knight, Capital
S. Noon, Capital
40,000

93. GENERAL JOURNAL DATE DESCRIPTION DEBIT PR CREDIT 1 Liabilities 80,0002
Cash
80,000 3 4 5 6 7 8 9 10 11

94. LIQUIDATION OF A PARTNERSHIP
Example: After many years of operations the partnership is to be liquidated. After closing entries the following accounts remain:
Cash
$ 225,000
Cash is
paid to
partners.
Inventory
Other Assets
Liabilities
D. Morning, Capital
80,000
105,000
L. Knight, Capital
S. Noon, Capital
40,000

95. GENERAL JOURNAL DATE DESCRIPTION DEBIT PR CREDIT 1 D. Morning, Capital
80,000 2
L. Knight, Capital
105,000 3
S. Noon, Capital
40,000 4
Cash
225,000 5 6 7 8 9 10 11

96. LIQUIDATION OF A PARTNERSHIP
Example: After many years of operations the partnership is to be liquidated. After closing entries the following accounts remain:
Cash $
Inventory
Other Assets
Liabilities
D. Morning, Capital
L. Knight, Capital
S. Noon, Capital
Partnership is liquidated!