Final accounts of partnership firms

Final accounts of partnership firms

The final accounts prepared by partnership firms are:

a)     Manufacturing account – if manufacturing activity is carried on

b)    Trading and profit and loss account – to ascertain profitability

c)     Profit and loss appropriation account – to show the disposal of profits and surplus

d)    Balance sheet – to ascertain the financial status.

The procedure for preparation of final accounts of a partnership firm is the same like sole proprietorship business except the following:

a)     In sole proprietorship, the profit or loss in the profit and loss account is transferred directly to the sole proprietor’s capital account. In partnership, profit and loss appropriation account is prepared to which net profit or loss from profit and loss account is transferred. In the profit and loss appropriation account, adjustments for interest on capital, interest on drawings, salary and other remuneration due to the partners are shown. Finally, the balance in the appropriation account is transferred to the partners’ capital account in the profit sharing ratio.

b)    Capital account balance of the sole proprietor alone is shown in the balance sheet of sole proprietorship. The balance sheet of a partnership concern shows the balances in the individual capital accounts (and current accounts) of the partners.