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Principles of Accounting, Volume 1: Financial Accounting

Key Terms

Principles of Accounting, Volume 1: Financial AccountingKey Terms
bonus
difference between the value of a partner’s capital account and the cash payment made at the time of that partner’s or another partner’s withdrawal
capital account
equity account for each partner that tracks all activities such as profit sharing, reductions due to distributions, and contributions by partners to partnership
dissolution
closing down of a partnership for economic, personal, or other reasons that may be unique to the particular partnership
general partnership
partnership in which each partner is personally liable to the partnership’s creditors if the partnership has insufficient assets to pay its creditors
limited liability
form of legal liability in which a partner’s obligation to creditors is limited to his or her capital contributions to the firm
limited liability partnership (LLP)
partnership that provides all partners with limited personal liability against all other partners’ obligations
limited partnership (LP)
partnership in which at least one partner is a general partner but the remaining partners can be limited partners, which means they are liable only for their own investment in the firm if the partnership cannot pay its creditors; thus, their personal assets are not at risk
liquidation
(also, dissolution) process of selling off non-cash assets
mutual agency
ability of each partner to act as an agent of the partnership in dealing with persons outside the partnership
partner
individuals, corporations, and even other partnerships participating in a partnership entity
partnership
legal business structure consisting of an association of two or more people who contribute money, property, or services to operate as co-owners of a business
partnership agreement
document that details the partners’ role, the way profits and loss are shared, and the contributions each partner makes to the partnership
realization
the sale of noncash assets for cash
unlimited liability
form of legal liability in which general partners are liable for all business debts if the business cannot meet its liabilities
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