Statements For Partnerships
The allocation of net income and its impact on the partners' capital balances must be disclosed in the financial statements. All three financial statements are affected: the income statement, statement of owners (partners') equity, and balance sheet. In addition, the statement of partners' equity reflects the equity of each partner and summarizes the allocation of net income for the year.
Statement of Partners' Equity
Statement of partners' equity starts with capital balances at the beginning of the accounting period, and reflects additional investments, made by the partners during the year, net income for the period, and withdrawals.
Additional investments and allocated net income increase capital accounts of the partners. All kind of allowances, like salary allowances and capital allowances, are treated as withdrawals. Withdrawals reduce capital accounts. The end result is capital balances of the partners at the end of the accounting period.
A sample statement of partners' equity is shown below.
| Partner A | Partner B | Total | |
|---|---|---|---|
| Capital, Jan. 1, 2008 | $40,000 | $30,000 | $70,000 |
| Additional Investments | $10,000 | $20,000 | $30,000 |
| Capital plus investments | $50,000 | $50,000 | $100,000 |
| Net Income for the year | $60,000 | $40,000 | $100,000 |
| Balance | $110,000 | $90,000 | $200,000 |
| Withdrawals | $30,000 | $20,000 | $50,000 |
| Capital, Dec. 31, 2008 | $80,000 | $70,000 | $150,000 |
Equity section of the balance sheet
The partners' equity section of the balance sheet reports the equity of each partner, as illustrated below.
| Partner A, Capital | $80,000 | |
| Partner B, Capital | $70,000 | |
| Total partners' equity | $150,000 |
Read more about this topic: Partnership Accounting
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