Partnerships Accounting Adjustments

Partnership Accounting Adjustments

Key Concepts

Partnership Accounting Adjustments are corrections made to a partnership’s accounts to account for any changes made during the accounting period.

Common Partnership Accounting Adjustments

Profit Sharing Ratio Change: An alteration of how profits are divided amongst the partners.
Admission of a New Partner: The addition of a new partner to the business can require certain adjustments in the books of accounts.
Retirement or Death of a Partner: This may necessitate reallocation of shares amongst remaining partners.
Revaluation of Assets and Liabilities: The revaluation process ensures the assets and liabilities reflect current market value.
Drawing by Partners: Any withdrawal made by partners for personal use.

Aim of Partnership Accounting Adjustments

Accurate Representation of Financial Status: To provide a true and fair view of the financial status of the business.
Equitable Distribution of Profit/Loss: To ensure that the profit or loss is accurately divided amongst the partners on an equitable basis.
Regulating Inner Agreement: To enforce the provisos of the partnership deed and keep the business in check.

Outcomes of Partnership Accounting Adjustments

Adjusted Partnership Accounts: The final result is an updated representation of the partnership’s financial status.
Amended Capital Accounts: The capital accounts of the partners will be updated to reflect any changes during the accounting period.
Updated Profit & Loss Account: The profit and loss account will reflect the accurate distribution of profit/loss amongst partners.
Revised Balance Sheet: The balance sheet will accurately represent the net assets (assets - liabilities) owned by the partnership.