When two or more individuals engage in enterprise as co-owners, the organization is known as a partnership. This form of organization is popular among personal service enterprises, as well as in the legal and public accounting professions. The important features of and accounting procedures for partnerships are discussed and illustrated below.

As ownership rights in a partnership are divided among two or more partners, separate capital and drawing accounts are maintained for each partner.

If a partner invested cash in a partnership, the Cash account of the partnership is debited, and the partner's capital account is credited for the invested amount.

If a partner invested an asset other than cash, an asset account is debited, and the partner's capital account is credited for the market value of the assets.

If a certain amount of money is owed for the asset, the partnership may assume liability. In that case an asset account is debited, and the partner's capital account is credited for the difference between the market value of the asset invested and liabilities assumed.

A capital interest is an interest that would give the holder a share of the proceeds in either of the following situations:

The mere right to share in earnings and profits is not a capital interest in the partnership. This determination generally is made at the time of receipt of the partnership interest.

Capital account of each partner represents his equity in the partnership.