Accounting·Final accounts & financial statements · NSSCO 3.2
Appropriation, capital & current accounts
Narrated lesson · press play
When two people own a business together, the books grow up a little. We keep everything we know about a sole trader, then add three new records — an appropriation account to share the profit fairly, plus a capital account and a current account for each partner. We'll build an appropriation account step by step, prepare a partner's current account, slot everything into the income statement and statement of financial position, and finish with goodwill when a new partner joins.
What you'll learn in this lesson
By the end you should be able to (NSSCO Accounting 3.2):
- Explain the differences between the accounting records of a sole trader and those of a partnership business
- Explain the importance of appropriation
- Show the treatment of the division of the balance of profit or loss, interest on capital, interest on drawings, partners' salaries and interest on partners' loans in the accounts
- Make the other adjustments as detailed in Theme 2, Unit 1
- Record General Journal entries for the closing transfers related to appropriation
- Draw up a trading account, profit and loss account, as well as an appropriation account
- Prepare an Income Statement of a partnership in vertical format with sections for Trading, Profit and loss, and Appropriation
- Differentiate between fixed and fluctuating capital accounts
- Explain the importance of the current account of partners
- Prepare the capital and current accounts of partners in the ledger
- Prepare the partnership's Statement of Financial Position (vertical format)
- Explain the meaning of the term goodwill
- Prepare the accounting entries for goodwill on admission of a new partner
Loading your lesson…
You're watching a free 3-minute preview — create a free account to keep going.
Quick revision
Revise this in 5 minutes
Ms Pieters and Mike talk through the whole topic — with the figure and working drawn live.