Form 38. Cash Summary Book—Disbursements Side
Other Controlling Accounts.—It is frequently desirable to keep some accounts of the business private, such as those showing partners’ investments, drawings, ratios of sharing profits, the adjusting and closing entries, the profit and loss, etc. This can be accomplished through the use of a private ledger supported by a private journal and sometimes a private cash book. For their operation a controlling account of the private ledger is set up in the general ledger, and similarly a controlling account of the general ledger appears in the private ledger. The use of private books is explained in Volume II of this work.
Sometimes subsidiary expense ledgers are used to carry a minute division of each expense group, with corresponding controlling accounts, such as Selling Expense, Office Expense, General Expense, Factory Expense. Similarly, if the consignment sales of a business are large enough to justify a separate record in a consignments ledger, a controlling account is set up in the general ledger. In a manufacturing business, Raw Materials, Goods in Process, and Finished Goods accounts are often controlling accounts for the stores, jobs, and finished stock ledgers. In a corporation the Capital Stock account (or accounts) is a controlling account over the stock ledger.
Principle Governing Content of Subsidiary Ledgers.—Before closing this chapter, it should be stated as a fundamental principle that no accounts should be carried in a subsidiary ledger except such as are of the same general kind and can without misrepresentation be carried under the group title of the controlling account.
CHAPTER XXXII
PARTNERSHIP FROM THE
BUSINESS VIEWPOINT
Partnership Defined.—In [Chapter II], reference was made to some of the features of a partnership—the purpose of its formation, advantages, disadvantages, etc. The laws of the state of New York define a partnership as follows: “A partnership, as between the members thereof, is the association, not incorporated, of two or more persons who have agreed to combine their labor, property and skill or some of them for the purpose of engaging in any lawful trade or business, and sharing the profits and losses as such between them.”
This definition brings out in a general way the reasons for the formation of the partnership and its essential features. Under this type of organization, where several persons combine their capitals, it is possible to secure a larger fund of capital than under the sole proprietorship. This opens to the partnership avenues of business usually closed to the sole proprietor. The bringing together of the man with a special aptitude or skill, or of a man with a following in the community on account of social standing and acquaintanceship, with another who has money or a plant for the operation of a business, often makes successful an otherwise unpromising undertaking.
Operating Feature and Working Organization.—Mutual agency is the essential operating feature of the partnership. By this is meant that any one of the partners can act for the others, and in the eyes of the law all are equally responsible for the management of the business. Except in the case of a limited partnership, to be explained later, each partner has an equal voice in the management and control of affairs. Unlike the corporation where for management purposes the owners’ powers are delegated to a controlling board, the essential character of the partnership is that each partner has, regardless of the amount of his investment, an equal right in the direction of its business. As between themselves, for purposes of division of duties and specialization of effort, definite power to exercise control over certain features of the business may be delegated to individual partners. But such delegation means nothing more than a method of dividing the work and is simply the working organization of the firm which may be changed at any time the majority of the partners see fit. Thus, while a partner may be limited in his actions for the firm by agreement among the partners, so that he is not a general agent for the firm, still as to outsiders who know nothing of this internal arrangement, he has power to bind the partnership by his acts, because an outsider has a right to expect that any partner has power to act as an agent for the firm. This is so because such power is of the essence of the partnership form.
Essential Characteristics of the Partnership.—Limited life is an essential characteristic of the partnership. The partnership relation is a very personal one. It can be terminated in a number of ways, but the death or retirement of any member automatically works a dissolution of the firm, even though another man takes his place. The legal theory is that the old partnership is dead and a new one, even though bearing the same firm name, has come into existence. Thus a partnership cannot be perpetual. The relationship between the partners is so intimate that the success of the undertaking depends fundamentally on the good faith and honor exercised by each partner towards the others, and therefore any addition to the personnel of a partnership can be made only with the consent of all members of the existing firm.
The partnership being the outgrowth of the sole proprietorship, certain of the aspects of its earlier form still cling to it. For suit at law it is looked upon as a collection of single owners, and action on contract must usually be taken against the individual members of the firm. Suit by or against the partnership cannot as a rule be brought in the firm name. Some states, however, allow this under recent enactments. Title to personalty can be held and transferred under the firm name, but realty must be in the name of the individual members or in the name of one member acting as trustee for the firm. Thus, while in the view of the business community the copartnership is a business entity under a firm name, in the sight of the law it is not an entity but merely a collection of single owners. This legal view accounts also for the full debt liability of every partner—except in a limited partnership. In case the firm assets are insufficient to meet the claims of creditors, any or all the partners’ private resources may be levied upon.