Accounting for Partnership
In Sri Lanka, in addition to sole proprietorships, partnerships are another popular form in which
business are started and mostly family members form themselves into a partnership. Professional
institutions such as audit firms, legal firms and medical firms are the kind of enterprises operating
in form of partnerships.
As per partnership ordinance 1890, a partnership business is ‘the relation that subsist between
persons carrying on a business with a common view of profits.
• Profit orientation
• Participation of two or a group of persons.
• Relationships among the partners
• Having a business activity
Methods of continuing partnership business
Partnership agreement
1. By oral agreement
2. By implication
3. By a written agreement
Partnership act
The matters pertaining to the partnerships are sorted out with reference to the section 24 of 1890
partnership ordinance.
• Equal capital
• Equal profit-sharing ratio
• Partners are not entitled for salaries
• Partners are not entitled for interest on capital
• If a loan is given, in addition to the capital, interest can be charged at 5%
• A new member can be admitted only with the consent of all partners.
• All the partners are entitled to examine the accounts and to participate management.
• Partners are entitled to reimbu8rse the expenses they incur on partnership activities.
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,Accounting for partnerships
1.Capital accounts for partners
2. Current accounts for partners
3.Drawing accounts for partners
4. Loan accounts for partners
Partners’ capital Account
The investment made by the partners by the way of cash or otherwise is recorded in Partners’
capital Account. Generally, the capital account is stable account. Followings are recorded in the
capital account.
1. Capital invested at the commencement of the business
2. Additional capital invested subsequently
3. Withdrawals of capital with the consent of other partners.
4. Adjustments of goodwill
5. Profits and losses in the capital nature
E.g Revaluation of assets
Capital Account
Date Description A B C Date Description A B C
Writing of the X X X B/B/F X X X
goodwill
Withdraw of capital X X X Goodwill adjustment X X X
C/D X X X Additional capital X X X
adjustment
X X X X X X
Partners current account
This is the account being maintained to represent the current interest of the partners. A credit
balances reflect the retained share of the partners profits and the debit balance shows the amount
overdrawn by the partners in excess of profits which belong to the partners. The current account is
a representation of the short-term equity of the partners.
Date Description A B C Date Description A B C
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, B/B/F X X X B/B/F X X X
drawings X X X Interest on capital X X X
Interest on X X X salaries X X X
drawings
Share of losses X X X commissions X X X
Loan interest X X X
rent X X X
Share of profits X X X
Partners Loan account
Any amount advanced or lent to the partnership by the partners are normally credited to the loan
accounts maintained in the names of the partners without being credited to the capita account.
Annual Financial statements of a partnership
Annual financial statements of a partnership is not a statutory requirement. However, Annual
financial statements of a partnership are prepared in order to determine the profits and losses of
the partnership and to share them as agreed in the partnership agreement. The department of inland
revenue may request the financial statement of the partnership in order to determine the personal
tax obligations of the partners banks and financial institutions usually rely on the financial
statements of a partnership in granting the financial facilities to the partnership.
1. Statement of profit and loss and income statement
2. Statement of financial position.
3. Capital account
4. Current account
5. Cashflow statement
6. Notes to the financial statement and accounting policies
In addition to the above, a profit appropriation account is also in existence for distributing profits
and losses of the partnership business. Followings are shown in the profit appropriation account.
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In Sri Lanka, in addition to sole proprietorships, partnerships are another popular form in which
business are started and mostly family members form themselves into a partnership. Professional
institutions such as audit firms, legal firms and medical firms are the kind of enterprises operating
in form of partnerships.
As per partnership ordinance 1890, a partnership business is ‘the relation that subsist between
persons carrying on a business with a common view of profits.
• Profit orientation
• Participation of two or a group of persons.
• Relationships among the partners
• Having a business activity
Methods of continuing partnership business
Partnership agreement
1. By oral agreement
2. By implication
3. By a written agreement
Partnership act
The matters pertaining to the partnerships are sorted out with reference to the section 24 of 1890
partnership ordinance.
• Equal capital
• Equal profit-sharing ratio
• Partners are not entitled for salaries
• Partners are not entitled for interest on capital
• If a loan is given, in addition to the capital, interest can be charged at 5%
• A new member can be admitted only with the consent of all partners.
• All the partners are entitled to examine the accounts and to participate management.
• Partners are entitled to reimbu8rse the expenses they incur on partnership activities.
1|Page
,Accounting for partnerships
1.Capital accounts for partners
2. Current accounts for partners
3.Drawing accounts for partners
4. Loan accounts for partners
Partners’ capital Account
The investment made by the partners by the way of cash or otherwise is recorded in Partners’
capital Account. Generally, the capital account is stable account. Followings are recorded in the
capital account.
1. Capital invested at the commencement of the business
2. Additional capital invested subsequently
3. Withdrawals of capital with the consent of other partners.
4. Adjustments of goodwill
5. Profits and losses in the capital nature
E.g Revaluation of assets
Capital Account
Date Description A B C Date Description A B C
Writing of the X X X B/B/F X X X
goodwill
Withdraw of capital X X X Goodwill adjustment X X X
C/D X X X Additional capital X X X
adjustment
X X X X X X
Partners current account
This is the account being maintained to represent the current interest of the partners. A credit
balances reflect the retained share of the partners profits and the debit balance shows the amount
overdrawn by the partners in excess of profits which belong to the partners. The current account is
a representation of the short-term equity of the partners.
Date Description A B C Date Description A B C
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, B/B/F X X X B/B/F X X X
drawings X X X Interest on capital X X X
Interest on X X X salaries X X X
drawings
Share of losses X X X commissions X X X
Loan interest X X X
rent X X X
Share of profits X X X
Partners Loan account
Any amount advanced or lent to the partnership by the partners are normally credited to the loan
accounts maintained in the names of the partners without being credited to the capita account.
Annual Financial statements of a partnership
Annual financial statements of a partnership is not a statutory requirement. However, Annual
financial statements of a partnership are prepared in order to determine the profits and losses of
the partnership and to share them as agreed in the partnership agreement. The department of inland
revenue may request the financial statement of the partnership in order to determine the personal
tax obligations of the partners banks and financial institutions usually rely on the financial
statements of a partnership in granting the financial facilities to the partnership.
1. Statement of profit and loss and income statement
2. Statement of financial position.
3. Capital account
4. Current account
5. Cashflow statement
6. Notes to the financial statement and accounting policies
In addition to the above, a profit appropriation account is also in existence for distributing profits
and losses of the partnership business. Followings are shown in the profit appropriation account.
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