CHANGING PARTNERSHIP BOOKS TO DOUBLE ENTRY
12. We will suppose that the ledger illustrated in the following model set (pages 23-27) represents the business of Benton, Douglas, and Kemp, and that the books have been kept by single entry.
They wish to adopt the double entry method and call you in to make the necessary changes in their books.
Your first step is to make a statement of the ledger accounts, including all except the capital accounts of the partners. This statement gives you the following information:
| Personal Accounts, Debit Balances | $189.25 |
| Personal Accounts, Credit Balances | 2,828.50 |
| Cash in Bank | 7,313.73 |
You also balance the cash book and compare the balance with the cash in drawer, and find that the amount shown, $21.60, is correct.
In the meantime an inventory is being taken. When completed, the results shown are:
| Merchandise | $2,114.50 |
| Furniture and Fixtures | 2,000.00 |
The next step is to make a statement of assets and liabilities for the purpose of finding the present worth of the business.
| STATEMENT OF ASSETS AND LIABILITIES | ||
|---|---|---|
| Assets | ||
| Cash in Bank (Ledger) | $7,313.73 | |
| Cash in Office (Cash Book) | 21.60 | |
| Personal Accounts (Ledger) | 189.25 | |
| Merchandise (Inventory) | 2,114.50 | |
| Furniture and Fixtures (Inventory) | 2,000.00 | |
| Total Assets | $11,639.08 | |
| Liabilities | ||
| Personal Accounts (Ledger) | 2,828.50 | |
| Present Worth | 8,810.58 | |
The capital accounts of the partners show the original investment to have been $9,000.00, which is more than the present worth. Deducting the latter from the former will give the net loss.
| Investment | $9,000.00 |
| Present Worth | 8,810.58 |
| Net Loss | 189.42 |
The partnership agreement provides that profits and losses are to be shared equally, but contains no reference to the payment of interest on withdrawals, or allowance of interest on personal credits.
The statement of assets and liabilities is entered in the journal and accounts opened in the ledger with merchandise inventory and furniture and fixtures—the only items not already represented by ledger accounts. To complete the change and balance the ledger the following single entry is made in the journal and posted to partners' personal accounts.
| James Benton | Dr. | $63.14 |
| Horace Douglas | Dr. | 63.14 |
| Henry Kemp | Dr. | 63.14 |
A trial balance will now show the ledger to be in balance.
You have followed the routine necessary to change the books of a partnership from single to double entry under the conditions given. A general rule to be followed is to ascertain the present worth, make the partnership adjustment as in double entry, and post as in changing books of a single proprietorship.