SS2 First Term Financial Accounting Lesson Note – Current Account and Partnership Dissolution

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WEEK 5

TOPIC:          CURRENT ACCOUNT AND PARTNERSHIP DISSOLUTION

CONTENTS:

1. Purpose of preparing current account
2. Preparation of partnership account
3. Dissolution of partnership

Sub-Topic 1: CURRENT ACCOUNT

In order to keep each partner’s capital fixed year by year in the capital account, the current account is prepared to take care of profits, interest on capital and salaries to which the partners may be entitled on the credit side while the drawings and interest on drawings are debited to it. The balance of the current account at the end of each financial year will then represent the amount undrawn or withdrawn profits. A credit balance will be undrawn profits while a debit balance will be drawings in excess of the profits to which the partner was entitled.

Preparation of partnership account

Example 1: Ogundele and Dapo are in partnership sharing profit and loss in the ratio 3:2. The following is the trial balance as at 31^st December, 2005.

Dr                                                       Cr

Capital:  – Ogundele                                                                          –           100,000

• Dapo                                                                                  – 50,000

Drawings: – Ogundele                     6,000

• Dapo 5,000

Purchases                                        120,000

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