Accounting for partnerships and non-profit organisations
What the examiner tests
This section tests partnership appropriation and accounts, plus the distinction between receipts and payments and income and expenditure for a non-profit organisation.
Core rules
- Partnership appropriation: interest on capital, partner salaries, interest on drawings, then residual profit or loss shared in the profit-sharing ratio.
- Capital and current accounts: fixed capital accounts stay unchanged; current accounts record appropriations, drawings and interest. Drawings reduce a partner's current account.
- Non-profit organisation: receipts and payments account is a cash summary. Income and expenditure account is prepared on the accruals basis. The accumulated fund is the equivalent of capital. A surplus increases the fund; a deficit reduces it.
- Subscriptions must be adjusted for arrears and advances to show income for the period.
Worked example
Partners A and B have capital of N$40,000 and N$60,000. Interest on capital is 10%; B receives a salary of N$6,000; residual profit is N$20,000, shared 3:2. Interest: A N$4,000; B N$6,000. Salary: B N$6,000. Total appropriations before residual = N$16,000. Residual = N$4,000: A N$2,400; B N$1,600. Total: A N$6,400; B N$13,600. Subscriptions received N$10,000; opening arrears N$500; closing arrears N$800; opening advance N$300; closing advance N$200. Income = 10,000 + 500 − 800 + 300 − 200 = N$9,800.
Traps
Do not share residual profit before interest and salaries. Interest on drawings is a credit in the appropriation account, not an expense. Do not treat subscriptions received as the income figure without adjustment. Do not present a receipts and payments account as an income and expenditure account. Do not charge partners' salaries as business expenses.