Acc 407 Advanced Accounting

Topics: Partnership, Corporation, Limited liability partnership Pages: 7 (2672 words) Published: May 25, 2013
Accounting for Partnerships
In the business world, there are different types of businesses can be classified into various forms of ownership. Some of those forms are a corporation, sole proprietorship, and a partnership. The form I will be discussing in this paper is called a partnership. A partnership is when two or more people own and operate in a business which also takes part of the responsibility. Our text says that “Partnerships are a popular form of business because they are easy to form and they allow several individuals to combine their talents and skills in a particular business venture” (Baker, Christenson, & Cottrell, 2011, p. 750). Partnerships have many different types of ownership which are limited partnerships (LP), limited liability partnerships (LLP), and limited liability limited partnerships (LLLP). Each one is characterized by how much liability each partner has within the company. There are many advantages of owning and running a partnership but there are also disadvantages, as well. Understanding each advantages and disadvantages will help the company to create and operate more effectively. The Financial Accounting Standards (FAS) govern accounting for partnerships when establishing which included creation, operation, and liquidation. When a partnership has been established, there are certain tax consequences a partnership may have. Tax consequences show what each partner has contributed to the business. Partnerships is not only a noble way to run a business but the individuals involved in the partnership are aware of each aspect and responsibility the partnership has which will assistance the company in developing into a successful business. A partnership is the relationship existing between two or more people who join together and operate a business that takes part in the responsibility of the business. Each person in the partnership contributes money, time, skills, and/or property and expects to split the profits and losses of the business. The ownership of the business could be split down the middle equally or carried by a certain amount of percentage based on the agreement between each partner. Partnerships can be flexible and could start as simple as a handshake or a written document. When starting to form a partnership, there are some factors that should be considered. According to Partnerships: The key ingredients, it states that “The key ingredients in forming a partnership can be put into five categories: 1. practice value, 2. price and terms, 3. income-splitting, 4. practice management, and 5. future valuation” (Cooper, 1993). Upon forming the partnership, it would be a greater benefit to figure out which type of partnership that would be the beneficial to the company. There are various types of partnerships that would be beneficial to the company but a partnership would have to find out which works best for them. The first type of partnerships is a limited partnership (LP). The second type is a limited liability partnership (LLP). The final type of partnership is a limited liability limited partnership (LLLP). Although it is important to understand each type of partnership, the purpose and meaning of each type will be useful according to the specific type of partnership a company is focusing on. The first type of a partnership is a limited partnership. The limited partnership has at least one general partner who is responsible for the obligations to the partnership. The general partner does not pass down the responsibility to anyone else because the general partner is the common partner meaning that the general partner knows enough about the business to make decision based on the overall general ideas. Also having at least one general partner, there is one or more limited partners who do not hold any of the responsibility or obligations to the partnership just liable for capital contributions. The second type of partnership is a limited liability partnership. The limited liability...
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