Common use of Methods of Accounting Clause in Contracts

Methods of Accounting. The transactions affecting the Partners’ Capital Accounts may be accounted under any of the following methods- Ledger A/cs prepared Partner’s Capital Account. 1. Partner’s Capital Account, and 2. Partner’s Current Account. Initial Capital contribution Amount brought in or contribution is credited to Partner’s Capital A/c Amount brought in or contributed is credited to Partners’ Capital A/c Subsequent transactions Subsequent transactions are accounted in Partner’s Capital A/c Subsequent transactions are accounted in Partner’s Current A/c To Cash/Bank (Withdrawal of capital, if any) To Balance c/d By Balance b/d By Cash/ Bank/ Assets (Capital Contribution) To Balance b/d To Drawings A/c To P&L A/c - Share of Loss To P&L Appropriation -Interest on Drawings To Balance c/d By Balance b/d By P&L Appropriation -Remuneration/ Salary etc. -Interest on Capital -Share of Profit By Balance c/d PROFIT & LOSS APPROPRIATION ACCOUNT 1. Purpose: Profit & Loss A/c of firm will show the profit earned or loss suffered by the firm. To distribute the Profit properly to the Partners, the Profit & Loss Appropriation A/c is used 2. Features: (a) It is an extension of P&L Account. (b) It is applicable only for Partnership Firm, and not Sole Proprietary Concerns. (c) It provides details of how Net Profit for the period has been distributed to the Partners. (d) The entries in P&L Appropriation A/c are governed by the Partnership Deed.