Accounting for Partnerships

Accounting for Partnerships

ACC 407 Advanced Accounting

Instructor Bradley Johnson

January 27, 2014

Accounting for Partnerships

A partnership is a business created and operated by at least two individuals. Each individual will agree to contribute personal assets to the partnership, and in return will share in the profits and losses of the partnership. There are two types of partnerships: general partnerships and limited partnerships. General partnerships are composed of two or more individuals. All partners involved in the partnership are responsible for the partners operations and debt. Partners contribute personal skills, money, assets, and personal-time for the partnership(Kaplan & Hard, 2002). In return, the partners will share in the businesses profits and losses. A limited partnership has general partners and limited partners. The limited partners are investors with limited liability and responsibilities. How does the accounting for partnerships work? The accounting process for partnerships requires each partner to record and report their share of the profit and loss of the partnership, on individual tax forms.

There are several advantages to an accounting of a partnership. These can range from simplified taxing to a decrease in paperwork. Simplified taxing is a big advantage in a partnership. This is because partnerships do not have to pay income taxes. However, profits and losses are passed through to the individual partners (Baker, Christensen & Cottrell, 2011). A partnership is required to file a tax return stating the business's profits and losses, but it is not required to pay taxes on the business income. Partners are required to file tax returns on their individual portion of the company's share of profits and losses.

Creating a general partnership is simpler, cheaper, and requires less paperwork than forming a corporation or any other type of business. The partnership will need to file a partnership...