How do partnerships and corporations differ in accounting processes? Reporting? Financial Statements? What are the benefits of each? How would you select one from another?
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Partnership and Corporation Accounting
Most of the activities in the world are done by the businesses. Different types of organizations are required different types of information that is obtained through the accounting system. The information generally differs among the different types of the organization. Partnership and corporations are different types of organizations that use different types of accounting information and processes (Anthony, Hawkins & Merchant, 2007). The nature of business is quite different of partnership and corporations that also create a different in the accounting process, reporting process and financial statements of both types of the organizations. This paper describes the different in accounting process, reporting, financial statements of partnership and corporation. It also explains the benefits of each and how one will select one for another.
Difference in Accounting Process
Partnership and corporations have the different accounting process with each other due to difference in the nature of their business structure. The accounting process for partnership is quite similar with the accounting process in proprietorship. In the corporation, the capital account includes information about all the shareholders, who have invested their capital in the business. On the other hand, in partnership, the capital account for each partner is opened separately. At the same time, drawings accounts is also opened separately for each partner. The partnership has a limited life as one partner may withdraw and new partner can be admitted any time in the business (Pefianco & Rosario, 2005). On the other hand, in the corporation the change in the stockholders doesn't affect its legal life. Shareholders are free to sold or buy the share of corporation at any time.
Corporation includes several rules and regulations and operates its activities on the basis of it that are determined by the Security and Exchange Commission (SEC). For the accounting process of corporations, there are some set accounting principles that should be followed. On the other hand, the accounting process for partnership is regulated by the partnership act (Carrillo, 1997). The accounting for the allocation of income in partnership is made on the basis of ratio on which partners are agreed upon. Most of the partnership firms allocate the income among partners on the basis of percentage of their investment. On the other hand, the income is not allocated directly to the shareholders in the corporation. The income is retained in the business for its future growth and a part of income is distributed among shareholders in the form of ...
The solution discusses the differences in partnerships and corporations in accounting.
Formation of Free-Will Partnership from separate proprietorships
Please see attachment.
The post-closing trial balances of two proprietorships on January 1, 2008 are presented below.
Free Company Will Company
Dr. Cr. Dr. Cr.
Cash $ 9,500 $ 6,000
Accounts Receivable 15,000 23,000
Allowance for Doubtful Accounts $ 2,500 $ 4,000
Merchandise Inventory 28,000 17,000
Equipment 50,000 30,000
Accumulated depreciation-equipment 24,000 13,000
Notes payable 25,000
Accounts payable 20,000 37,000
Free, Capital 31,000
Will, Capital _____ _____ _____ 22,000
$102,500 $102,500 $76,000 $76,000
Free and Will decide to form a partnership, Free-Will Company, with the following agreed upon valuations for non-cash assets.
Free Company Will Company
Accounts receivable $15,000 $23,000
Allowance for doubtful accounts 3,500 5,000
Merchandise inventory 32,000 21,000
Equipment 28,000 18,000
All cash will be transferred to the partnership, and the partnership will assume all the liabilities of the two proprietorships. Further, it is agreed that Free will invest an additional $3,000 in cash, and Will will invest an additional $13,000 in cash.
a. Prepare separate journal entries to record the transfer of each proprietorship's assets and liabilities to the partnership.
b. Journalize the additional cash investment by each partner.
c. Prepare a balance sheet for the partnership on January 1, 2008.