A partnership is a relation between two or more persons gathered for a common object. Generally the object of the partnership is to gain profit from a business. A partnership can be general partnership of limited liability partnership. To Indicate: the equation of net assets and capital balance of partners. The rule of accounting equation applies to the balance sheet of the partnership. As per the accounting equation, the assets are equal to the sum of the liabilities and equity. In other words, equity is equal to the difference between the assets and liabilities. Hence when the partnership liabilities are paid out of assets, the balance remaining is the partner’s capital balances or equity.

Financial Accounting: Information for Decisions

8th Edition

ISBN: 9781259533006

Author: John J Wild

Publisher: McGraw-Hill Education

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Chapter D, Problem 10DQ

Chapter D, Problem 12DQ

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After all partnership assets have been converted to cash and all liabilities paid, the remaining cash should equal the sum of the balances of the partners’ capital accounts. Why?

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After C’s admission, the partners agreed to adjust their capital balances to reflect their’ respective interests in the partnership’s net assets. Cash settlement is to be made between the partners. How much is the cash settlement?

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Solution Summary: The author explains that a partnership consists of two or more persons gathered for common objects. The rule of accounting equation applies to the balance sheet of the partnership.

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Chapter D Solutions