ZIMSEC O Level Principles of Accounting: Accounting for Partnerships: Capital and Current Accounts Example
- Bearing in mind what we have said in the introduction to capital and current accountshere
- And the basic guidelines here
- It is important to add the fact in this topic will mostly deal with making entries into Capital and Current Accounts among other things
- The example below involves making simple entries into Capital and Current Accounts
- This will hopefully get us started and help in later topics as we encounter much more detailed examples
Example on Capital and Current Accounts
Save and Moyo are trading in partnership sharing profits and losses and equally. Interest at 5% per annum is allowed or charged on both the capital account and the current account balances at the beginning of the year. Interest is charged on drawings at 5% per annum. The partners are entitled to annual salaries of: Save $12 000; Moyo $8 000.
Save and Moyo
Trial Balance as at 31 December 20X8
| DR | CR | |
| $ | $ | |
| Capital Accounts: Save | 100 000 | |
| Moyo | 50 000 | |
| Current Accounts: Save | 2 000 | |
| Moyo | 600 | |
| Cash Drawings for the year: Save | 15 000 | |
| Moyo | 10 000 | |
| Freehold premises at cost | 50 000 | |
| Stock at 1 January 20x8 | 75 000 | |
| Fixtures and Fittings at cost | 15 000 | |
| Purchases and Stock Returns | 380 000 | 12 000 |
| Bank | 31 600 | |
| Sales and Sales Returns | 6 000 | 508 000 |
| Trade Debtors and Trade Creditors | 52 400 | 33 300 |
| Carriage Inwards | 21 500 | |
| Carriage outwards | 3 000 | |
| Staff Salaries | 42 000 | |
| VAT | 8 700 | |
| Office Expenses | 7 500 | |
| Provision for doubtful debts | 2000 | |
| Advertising | 5 000 | |
| Discounts Allowed and received | 1 200 | 1 000 |
| Bad Debts | 1 400 | |
| Rent and business rates | 2 800 | |
| Accumulated provision for depreciation on fixtures and fittings | 3 000 | |
720 000 | 720 000 |
December 20X8:
- Stock on hand was valued at $68 000
- Purchase invoices amounting to $3 000 for goods included in the stock valuation at a above had not been recorded
- Staff salaries owing $900
- Business rates paid in advance $200
- Provision for doubtful debts to be increased to $2 400
- Goods withdrawn by partners for private use had not been recorded and were valued at: Save
$500 and Moyo $630. No interest is to be charged on these amounts - Provision is to be made for depreciation of fixtures and fittings at 10% on cost
- Interest on drawings for the year is to be charged: Save $360 Moyo $280
NB:
- As you can see this a comprehensive question we will be using it to illustrate partnership basics and not just here
Required:
- Show the capital and current accounts for Save and Moyo for the year ended 31 December 20×8
- The solution to the requirement above can be found here
To access more topics go to the Principles of Accounts Notes.
