Accounting 102 Chp.12

Partnership

A legal entity of two or more partners

Mutual agency

Each partner acts on behalf of the partnership

Limited life

Partnerships have limited life

Unlimited liability

Each partner is personally and individually liable for all partnership liabilities

Co-ownership of property

Partners jointly own partnership assets

Advantages of partnerships

(1)Combining skills and resources of individuals,(2) ease of formation,(3) freedom from certain governmental regulations, and (4) ease of decision making

Disadvantages of partnerships

(1),mutual agency, (2) limited life, and (3) unlimited liability

No Capital deficiency

When a partnership is liquidated and all partners have credit balances

Investment of assets in a partnership

Increases both the net assets and total capital of the partnership

Bonus

When the new partners’s investment differs from the capital acquired. The bonus difference either goes to the old partner or the new partner

Admission of a partner

Purchase of an interest is a personal transaction between one or more existing partners and the new partner