Overview: 6 Quick Tips to Preparing General Partnership Financial Statements
Learning how to prepare general partnership financial statements will obviously require more training than what can be explained in this article. However, this article will offer 6 fundamental steps to create the financial statements required for your partnership.
1. Record all income earned for a specified period in your Income Statement. The Income Statement is a report that list all income, expenses, and net profit/losses for a specified period of time. Unlike other income statements, in partnerships, profits or losses are divided amongst each partner according to their ownership percentage. For instance, if Partner Y has 40% ownership and Partner Z has 60% ownership, then they must appropriate the $100,000 net profit accordingly. That is, Partner Y will realize a $40,000 net profit; and similarly Partner Z will realize a $60,00 net profit.
2. Summarize changes in the owner's equity accounts on your Statement of Owner's Equity document. Basically, the Statement of Owner's Equity is reported on the Balance Sheet, and list the amount of equity at the beginning of the period, the changes made during the period, and the final equity amount at the end of the period. However, with partnerships, each partner's equity is appropriated according to each individual's ownership percentages.
3. Calculate assets, liabilities, and owner's equity on your Balance Sheet. The Balance sheet list all assets which are subtracted by all liabilities for a specified period of time. Prepare this statement as you would all other financial statements, until you reach the Statement of Owner's Equity section. (See step 2)
4. Adjust and input all closing entries in your General Journal as you would with all other financial statements. As you probably are aware, the general journal is just composed of a chronological listing of all transactions expressed in terms of debits and credits.
5. Summarize all other remaining permanent accounts by posting and closing on the Trial Balance similar to all other financial statement procedures. This report list all accounts and their corresponding balances, and are used to uncover errors in journalizing or posting.