Partnership final accounts

Partnership final accounts are prepared in a similar way as sole proprietorship accounts. They include Trading A/c, Profit & Loss A/c and the Balance Sheet.
Final accounts are prepared for the following purpose:-

i. To find out the gross profit or loss for the period

ii. To find out the net profit or loss for the period

iii. To know the financial position of the business as on a particular date

iv. To prepare various statements to plan for the future

v. To know how much are the debtors and creditors of the firm

vi. To know the sources of funds (liabilities) and the application of funds (assets)

vii. To calculate various ratios for analysis

viii. To provide audited financial statements and other documents to the bank for obtaining loans

ix. To value goodwill of the firm in cases of admission, retirement or death of a partner and on dissolution of the firm

x. To find the tax payable and make advance tax payments.

Preparation of Final Accounts

Final accounts of a partnership firm are similar to that of a sole trader. Only difference is that the profit is distributed among the partners whereas in a sole proprietorship it is added to the proprietor’s capital. First a trial balance is to be prepared from all the debit and credit balances of all the ledger accounts. From this, trading and profit & loss accounts are generated. Finally, a balance sheet is prepared to reflect the position as at period end. A trading account shows the gross profit or loss whereas a profit & loss account reflects the net position.

I. Manufacturing Account

It is prepared only for manufacturing concerns. It shows the cost of production.

II. Trading Account

Trading account is prepared in a trading concern and is a part of the profit & loss account. It records all transactions related to goods and direct expenses. If the credit side is greater than the debit side, the gross profit thus arrived at is transferred to the credit side of profit & loss account. On the other hand, if the debit side is greater than the gross loss is transferred to the debit side of the profit & loss account.

a. Debit side of Trading Account                 

•        Opening stock             

•        Purchases after deducting amounts for goods destroyed by fire, goods withdrawn by partners, goods distributed as free samples, etc.                 

•        Direct expenses meaning those expenses directly related to production or purchases of goods such as wages, freight inwards, factory rent, octroi, import duty, customs duty, manufacturing expenses such as electricity of factory, etc. 


b. Credit side of Trading Account               

•        Sales of goods           

•        Closing stock              


•        Goods destroyed by fire, goods withdrawn by partners, goods distributed as free samples, etc. may alternately be shown here instead of as a deduction from purchases.

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