A · Supplemental Illustration Center
Online-exclusive visual guides
1. The default rules — when the agreement is silent
| Situation | Profits | Losses |
|---|---|---|
| Written P&L agreement exists | Follow it strictly | Follow it; if only profits specified, losses follow the same ratio |
| No agreement at all | Proportional to capital contributions | Same proportion as profits |
| Industrial partner (service only) | Just and equitable share | NOT liable for losses |
| Capitalist-industrial partner | Capital share + just share for industry | Liable in proportion to capital only |
2. The division waterfall — order of operations
Under a special agreement, profit flows through allowances first; only the REMAINDER hits the ratio.
① Salaries
Reward time and talent. Allocated even if profit is insufficient — the shortfall just makes the remainder negative.
② Interest on capital
Reward invested money — usually a % of beginning/average capital. Also allocated in full.
③ Bonus
Reward performance — usually to the managing partner, only if profit clears a hurdle (and by definition, none on a loss).
④ Remainder
Whatever is left (even if negative) divided in the agreed ratio.
Board-exam habit: always make the four rows of a division schedule and prove that the allocations cross-foot to the exact net income. No rounding orphans.
3. Salaries vs drawings — two different animals
Salary allowance
A profit-division device. NOT an expense of the partnership — it never touches the income statement; it only routes income to a partner's capital.
Drawings
Actual cash taken out during the year. Debited to the Drawing account and closed against capital — unrelated to how profit is divided.
B · Interactive Workspaces
Practice tools
Tool 1 · Profit division calculator (two partners)
Salaries + interest on capital + remainder on ratio. Watch the schedule build itself.
C · Online-Exclusive Assessment