1. © 2014 Cengage Learning. All Rights Reserved. Learning Objectives © 2014 Cengage Learning. All Rights Reserved. LO1 Journalize entries to record investments by partners. LO2 Journalize entries to record withdrawals by partners.

2. © 2014 Cengage Learning. All Rights Reserved. Partnerships ●A business in which two or more persons combine their assets and skills is called a partnership. ●Each member of a partnership is called a partner. SLIDE 2 LO1 Lesson 23-1

3. © 2014 Cengage Learning. All Rights Reserved. Comparison of Forms of Ownership FormAdvantagesDisadvantages Sole Proprietorship 1.Ease of formation 2.Retention of all profits 3.Total control 4.Simple tax structure 1.Unlimited liability 2.Less capital available 3.Limited vision and skills 4.Terminates with life of owner Partnership1.Ease of formation 2.More capital available 3.Share work; each partner can operate in their area of expertise 4.Simple tax structure 1.Unlimited liability 2.Liable for partner’s actions 3.Must share profits 4.Hard to dissolve 5.Terminates with life of one partner Corporation1.Limited liability 2.Ease of transfer of ownership 3.Unlimited life of the organization; does not terminate with death of investor 1.Harder/more expensive to form 2.Less control 3.Double taxation 4.More government regulations SLIDE 3 Lesson 23-1 LO1

4. © 2014 Cengage Learning. All Rights Reserved. Partnership Agreements ●A written agreement setting forth the conditions under which a partnership is to operate is called a partnership agreement. ●Legally, a partnership agreement may be either written or oral. ●However, a written agreement may limit misunderstandings in the future; therefore, a partnership agreement should be in writing. SLIDE 4 LO1 Lesson 23-1

5. © 2014 Cengage Learning. All Rights Reserved. Written Partnership Agreements ●Name of the business and the partners ●Investments of each partner ●Duties and responsibilities of each partner ●How profits and losses are to be divided ●What happens if a partner dies ●How the partnership is to be dissolved ●Duration of the agreement SLIDE 5 LO1 Lesson 23-1

6. © 2014 Cengage Learning. All Rights Reserved. Initial Investments by Owners SLIDE 6 LO1 Lesson 23-1 January 1. Received cash from partner, Sarah Hatcher, as an initial investment, $20,000.00. Receipt No. 1. Cash 20,000.00 Sarah Hatcher, Capital 2 2 Debit Cash for amount of cash invested by owner 1 1 1 Credit capital account for total investment by owner 1

7. © 2014 Cengage Learning. All Rights Reserved. Initial Investments by Owners SLIDE 7 LO1 Lesson 23-1 January 1. Received cash, $17,000.00, and office equipment valued at $3,000.00, from partner, Parker O’Reilly, as an initial investment. Receipt No. 2. Office Equipment 3,000.00 20,000.00 Parker O’Reilly, Capital Cash 17,000.00 Debit Office Equipment for value of asset invested by owner 2 3 3 4 4 Credit capital account for total investment by owner 2 5 5 Debit Cash for amount of cash invested by owner 2

8. © 2014 Cengage Learning. All Rights Reserved. Withdrawal of Cash by Partner SLIDE 8 LO2 Lesson 23-1 January 15. Parker O’Reilly, partner, withdrew cash for personal use, $750.00. Check No. 12. Parker O’Reilly, Drawing 750.00 Cash 1 1 Debit Parker O’Reilly, Drawing 2 2 Credit Cash

9. © 2014 Cengage Learning. All Rights Reserved. Withdrawal of Supplies by Partner SLIDE 9 Lesson 23-1 January 15. Sarah Hatcher, partner, withdrew supplies for personal use, $450.00. Memorandum No. 1. LO2 2 2 Credit Supplies 1 1 Debit Sarah Hatcher, Drawing Sarah Hatcher, Drawing 450.00 Supplies

10. © 2014 Cengage Learning. All Rights Reserved. Lesson 23-1 Audit Your Understanding 1.List at least three items that should be included in a partnership agreement. SLIDE 10 ANSWER A partnership agreement should include: Name of the business and the partners Investments of each partner Duties and responsibilities of each partner How profits and losses are to be divided What happens if a partner dies How the partnership is to be dissolved Duration of the agreement Lesson 23-1

11. © 2014 Cengage Learning. All Rights Reserved. Lesson 23-1 Audit Your Understanding 2.Which accounts are debited and credited when a partner withdraws merchandise from the partnership? SLIDE 11 ANSWER The partner’s drawing account increases by a debit; Purchases decreases by a credit. Lesson 23-1