when a partner dies, the capital account balances of the remaining partners This is a topic that many people are looking for. diane-kruger.net is a channel providing useful information about learning, life, digital marketing and online courses …. it will help you have an overview and solid multi-faceted knowledge . Today, diane-kruger.net would like to introduce to you Current Account in Partnership (General Ledger) Full Example. Following along are instructions in the video below:
“To contacts in this lesson. We are going to be looking at the current account. Account. The general ledger of the current account.
There is of partnerships of partners in partnership in our previous lesson. We looked at statement of changes in equity for a partnership and we re going to use the exact same example that we used to complete the statement of changes in equity to do the current accounts of the partners in the general ledger. This is an account and by general ledger. We mean that he account where we show each partners current account and the movements in the current account during the period.
And that is why we complete the current account of each partner of the partners in a partnership want to see the movements in their current account want to see what their balances were at the beginning. And what the balances are at the end of the period. So let s look at the one that we had looked at before we use this information. Here and this is the information.
We were given and we re asked to complete the statement of changes in equity for the partnership and that is what we did and this is the statement of changes in equity that we completed in that lesson. If you d like to check that one out you can click on the link at the top right of the screen or you ll find the link in the description below. And it s very important that you look at this lesson here before you look at the one we are about to do and the reason for that is because of the calculations that we did for things like interest on capital interest on parent accounts and they share the sharing ratio of the remaining profits. So we re not going to go into detail on doing those calculations.
We re just going to take the calculations that we had calculated when we are doing the statement of changes in equity. But we re going to show you how to do the t account for the current account of the partners. So here we are asked to prepare the current accounts of c crop. And we are also asked to properly balance the account in the general ledger of the partnership.
So your question may be might be phrased similar to what this one similar to how this one is phrased prepare the current account of the partners or of a particular partner in our case. Yes we crop that s the partners name and we are asked to properly balance the account in the general ledger of the partnership. So how does a t. Account.
Or a general ledger of partner look well this is how it looks we ve got our debit on the left hand side and the credit on the right hand side and the heading day is current account and then we specify for which patent id is because we do the current account for each partner. That you have if you are asked to do four separate partner you ll have to name them according to the partner. So here we are specifically going to do foresee crop now if you d like to understand how to do the general ledger. What the format is and how to go about it and also how to balance all the accounts.
We re not going to explain that in great detail here we have another lesson what we also looked at that one day you can click at the link on the top right of the screen and you ll also find the link in the description below. But let s go back to our question and see how do we do the current account of c crop. Well the first thing that we need to do is to find out what the balance was at the beginning of the period. And there is the first that that should say so you can see here from the question that we had last time when we re doing the statement of changes in equity.
We use this question. Here and you can see here we are given the current account and we are told here it s first of january 2019 so this is the opening balance of the current account at the beginning of this period. And there is how you ll always be given either in the trial balance or you ll be given somewhere in your additional information to say that the current account balances at the beginning of the period. Where such and such amount and there is what you begin with when you re doing the current account of the partners 4c crop at the beginning.
It was 25 thousand ran and you can see also when we did the statement of changes in equity balances at the. Beginning we have 25000 branch. So we are focusing only on the items which affect the current account so we begin with that one so since it s a credit balance that means the positive balance in the current account of the partner. So we re going to put it on the credit side.
So we re going to put the date here first of january cuz. It s the opening balance and you put balance brought down. Very important and like i said if you check out that lesson. Where we show you how to do a general ledger.
You would understand this one so balance brought down and who put down the 25000. Drain..
Remember it s a credit balance. We redundant credit. If you told you it was a debit balance or it was an unfavorable balance or a negative balance then you put it on the debit side. But here we re already told that it was a credit balance of on the credit side.
25000. Rem. Now. What is the next thing that we do let s go back to our question.
Remember there are many things that affected a the current account. Some of that is the interest charge took headed to their partner and interest paid to the partner. So here look at this one here. We are told that interest at five percent per annum on the opening balances of the partners capital.
Account and current accounts now if interest is five percent per annum on the capital account and current accounts of the partners. Remember. The interest on capital and interest on current account will go to the current account of the partner. So they both affect the current account of the partner now let s see what are the opening balance of the partners capital account.
Because we need to calculate the interest on that one day you can see. The. Capital account. Foresee crop.
Was. 80000. Rent so going to. Say 80000.
Times. Five. Percent. To get what the interest on capital is and remember.
If he has a capital in the business. We are paying him the interest so it s a favorable balance to him it s a good thing for him. So everything that is going to the partner is being paid to the partner you put it on the credit side everything that is being charged to the partner. We put it on the debit side.
So here we are paying him interest on capital account. We are paying paying him interest for having a positive capital account of five percent or eighty thousand times five percent and you can see here when we did the statement of changes in equity. We ve already calculated it so interest on capital. It s four thousand ran and there is eighty thousand times the 5.
It gives us four thousand grand. So you go back. We put. 31 december.
Now remember the opening balance is the first of january and then everything else is at the end of the period. So it s 31 december. And then you put interest on capital that s four thousand rain that we calculated now we move on the interest on current account. Remember here.
We re told interest at five percent per annum on the opening balances of the partners capital and current account. So it s also five percent on the current account now if the partner has a positive current account at the beginning..
If he had a positive current account then we are paying him interest for having a positive current account. But if they had a negative current account would be charging him for having a negative current account. But here were told the credit balance. So like i mentioned if it s credit.
Then it s a positive. Hand so we are. Paying. Him 5 on these.
25000 to see crow so 5 times 25000. We already calculated it when we did the statement of changes in equity. So the interest on current account and you can see it s positive here. So it s 1254 see crop.
So we put interest on current account 1250. I didn t have to put the date again because if the same if the date is the same as them the one on top then continue just do it without the dates. So we ll assume that all of the amount at the first of december. There is what there is how we do the the t account with the dates.
So it s very 1 december. From here going forward. It was only on the first of january. Only for the opening balance 1250.
Now we go back to our question. What else do we need to do so we have done interest on capital. We have also done interest on current calm and then number. 3.
Tells us interest is charged so here you re charging the partner at 10 of the partner s drawing account now. What is drawing drawing is when the partner takes something from the business. You can take money you can take an asset from the business or never take something we charge them interest on whatever they took from the business. So we re charging them 10.
So what a secret take out well we can see here drawing see crop. 5000 right so we re going to charge him 10 of that. 5000. Ren so we take 10 times 5000.
Ren. It gives us 500 grand. Remember we are charging him for drawing from the business. So going to put it on the debit side of its current account on the other side of that general ledger of the t.
Account. And you can see here also from the statement of changes in equity interest on drawings 500. Grand there was 10 times the 5000. Read it gives us 500 plan and we put it as a negative here.
There is why it s taking it s deducting their current accounts. It s taken away from that current account because we charging them so we put it on the debit side. So you can see here. We put the date again 31.
December. Interest on drawings 500 rent..
Now that you have done interest on drawing. Let s go back before. We continue here let s look at what their drawings out what did they draw during the period well drawings for seed crop like we saw it was 5000. Ren.
So don t forget to put the actual drawings. Many students usually forget to do that they usually put the interest on drawings and then they forget to put the actual drawings that a partner drew from the business or what the partner took from the business. So there is interest on drawings. And there s also drawings so the drawings is the actual amount that he three which is the five thousand ran.
Which he took from the business. So put on the debit side as well because whatever he took from the business or the drawings that he had we deducted from his current account so put it on the debit side. So we go to the debit side. It s still there one december.
So we don t have to put the data again with drawings and we put the five thousand rent now we can move on and so what you would also want to do is when you are doing it do the interest on drawings. When they give you what the interest is that you charging them on drawings. And also do the drawings at the same time so. That you don t forget to do it.
Later now we go to number four. So of done number to die number three number one just tells us that they share profit and losses in the ratio of their capital accounts and then number four. We had told salaries were paid to the partners. As follows c.
Crop received two thousand ten per month and j cross k. Received 1500 rent per month. So we are focusing on seed crop here he received two thousand rent per month and if you checked out the lesson on the statement of changes in equity. We also mentioned that students usually forget to athlete for the entire year.
They just put that two thousand ran as if that s the only one he kept the good paid for the year remember. It s two thousand nine per month. So multiply that by 12 to get how much it is for the year so two thousand times. Twelve it gives us 24.
Thousand and you can also see from the statement of changes and changes in equity salaries to partners twenty four thousand rent so remember we paid the partner so it increases their current account so put it on the credit side as well so you go to the credit side to put salary to partner and you put twenty four thousand rent. So you can see how simple. It is to do. The general ledger account for each partner.
The current account for each partner and then we go on we are told number five the net profit for the year was hundred and sixty five thousand right now it s very important to note here that we have done everything that we needed to do which were very simple to plug in there in our partner in our current account in our partners current account. The only thing that we need to do now is the appropriation account. The appropriation account what goes into the appropriation account. Well is the profits of the which goes into the appropriation account.
And then whatever is remaining of the profits after taking into account everything else they the movements to and from the partners. We are left to the profits at the end of the period and then we shade between the. Partners so like here you were told that the net profit 165000. Ren.
I m not gonna explain this in detail. We did that when we re looking at the statement of changes in equity. So the net profit was hundred and sixty five thousand grand and you can see we had to take account with the things which affected the partners. The interest on drawings the interest on capital for all the partners.
The actual salaries to partners you can see all of them affected. The appropriation account..
So we did act whatever we needed to deduct and we added. Whatever we needed to add to see what profit is remaining after taking all those into account. So we re left with hundred and twelve thousand three hundred grand and we re told that in the remaining profits were shared among the partners in the ratio of their capital account. So we did that calculation in our previous lesson.
So you can see here partners. Share of remaining profits. Remember sic rob here as forty four thousand nine hundred and twenty and if you d like to check out how we did all those calculations check out the lesson on the statement of changes in equity and then so we take this forty four thousand nine hundred and twenty rent and we put it on the credit side. And what is this this is the share of the remaining profits.
This is the remaining profits. Which are being shared among the partners. So how much did c crop get well. We can see here from his current account.
He got forty four thousand nine hundred and twenty so put it on the credit side. If it was a loss like we mentioned in the other lesson you would put it on the debit side. But it s a profit so put appropriation account for the four thousand nine hundred and twenty and we have done everything that we needed to do the appropriation account is the last item that we needed to do remember of already drunk drawings here. So we have done everything that we needed to do that affected the current account of c crop during this specific period.
Now what do we need to do well. If you checked out the lesson on the general ledger in the t account on how to do that one you d know that now we need to balance off the accounts. The first thing that we need to do is to calculate they whatever we have on the credit side. Calculate whatever we have on the debit side and you ask yourself.
Which side is bigger. If you calculate everything you can see the credit side is the bigger amount so you have you add everything up if the credit side is the big amount you put the bigger sides amount both sites. And that s what we explained so you put ninety nine thousand one hundred and seventy and there is the total for the credit side because it s bigger than they than the debit side cuz. You can see the debit side is just five thousand plus 500.
Five thousand five hundred so you put the bigger sides amount on both sides and then once you ve done that you ask yourself so the small the smaller side is the debit side so what do we need on the debit side to make it equal day. The credit side one will take this total here nine thousand ninety nine thousand one hundred and seventy five thousand five hundred and we will get a balance of 93 thousand six hundred and seventy and what do you call that balance balance carried down like i said. I m not gonna explain it in detail check out the lesson on the general ledger and how to balance it off and how to do it you ll be able to understand it much better and then now we ve seen the balance carried down. We can see the bigger side is the credit side because the balance carried down is on the debit side.
So we re going to the debits to the credit side and at the end who put the date first of january of the following period. And we put balance brought down and who put the same amount that we had on balance carried down and the three thousand six hundred seventy so what i was saying here. There was ninety three thousand six hundred and seventy leaves a balance of ninety three thousand six hundred and seventy in sea crops. Current account in the partners current account that we had to calculate and remember here this first of january here is not the same as this first of january.
This is the first of january 2019 of the current period and then this is the first of january of the following period. So we d say it s the first of january 2020. So that is what you will begin with in the following period and a three thousand six hundred and seventy and that is how you go about doing the current account of the partner now the last thing. I would like to show you is the statement of changes in equity.
If you can see here this statement of changes in equity that we did the current account balance for sig crop is 93 thousand six hundred and seventy. So you can see that they balance. The current account. Where the general ledger.
Current account is 93 thousand six hundred and seventy and here in the statement of changes in equity also 93 thousand six hundred and seventy they have to be the same amounts when you are doing the statement of changes and we are doing the current account of the partners. I hope this lesson has made sense and you ve gained value from this lesson. And if you have gained value please subscribe to our channel like this video and share it to those you think it might help till next time ” ..
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