IGCSE Accounting: Financial statements of partnerships (Cambridge 0452)

Syllabus edition note. This resource follows the Cambridge IGCSE Accounting 0452 syllabus (and Cambridge O Level Accounting 7707, which has the same subject content for the same series) for exams in 2027, 2028 and 2029 (version 1), first examined in the March 2027 series in India and the June 2027 series elsewhere. If you sit 0452 in November 2026, you sit the 2026 syllabus (version 2), which differs: Paper 1 has 35 multiple-choice marks in 1 hour 15 minutes, not 40 marks in 1 hour 30 minutes; Topic 7 is “Accounting principles and policies”, without 7.2 Ethical considerations or 7.3 Technology and sustainability; 4.4 is “Irrecoverable debts and provision for doubtful debts”; income statements are named instead of statements of profit or loss; three-column running balance accounts are not required; Clubs and societies is 5.4 and Manufacturing accounts 5.5; and 6.3 is “Inter-firm comparison”. For this topic, the 2026 syllabus covers only trading and service businesses in 5.1 and limits drawings adjustments to goods taken by the owner for own use; for limited companies it excludes cumulative and non-cumulative preference shares, rights issues, share premium and capital redemption reserve but requires the difference between redeemable and non-redeemable preference shares (the 2027-2029 syllabus lists none of these); and for incomplete records it does not ask why businesses keep them or what their advantages are. If you sit in November 2026, work from the 2026 syllabus on the Cambridge International website.

This guide covers syllabus section 5.2 Partnerships from the Cambridge IGCSE Accounting 0452 syllabus for exams in 2027, 2028 and 2029 (version 1). It sits inside Topic 5 and uses different examples from the main Preparation of Financial Statements guide, so work through both. Course home: Cambridge IGCSE Accounting. Printable checklist. Find weak spots first with the free diagnostics.

What section 5.2 asks for

Content point in 5.2	Covered under
Trading, service, manufacturing or combined partnership	Types of partnership business
Advantages and disadvantages	Advantages and disadvantages
Importance and contents of an agreement	The partnership agreement
Purpose of an appropriation account	What the appropriation account is for
Statements of profit or loss, appropriation accounts, statements of financial position	Examples 1 and 2
Interest on loans, capital and drawings, salaries, division of the balance	Items table, both examples
Adjustments as in 5.1	Example 1
Uses of and differences between capital and current accounts	Capital and current accounts, Example 1

The syllabus excludes questions on ending a partnership, altering the profit-sharing ratio and limited liability partnerships. You also do not prepare financial statements when a partner joins or leaves.

Types of partnership business

A partnership is a business owned by two or more people. What it does decides which statements it prepares.

• Trading: buys and sells goods, for example a garden supplies shop. Revenue less cost of sales gives gross profit.
• Service: sells skills or time, for example a firm of surveyors. There is no cost of sales, so expenses come straight off revenue.
• Manufacturing: makes what it sells. A manufacturing account comes first, and its cost of production replaces purchases in the statement of profit or loss.
• Combination: for example a bakery that also resells coffee machines. It uses the statements for each activity.

Every type ends at profit for the year; the appropriation account then shares it.

Advantages and disadvantages

Advantages	Disadvantages
More capital is available from several owners	Every partner has unlimited liability for the debts of the business
Skills are pooled and decisions can be discussed	A disagreement can slow decisions or split the partners
Workload and risk are shared	Profit has to be shared, so each owner may earn less than a sole trader would

When a question asks you to advise someone, link the point to their facts: an owner short of money gains from extra capital; one with a house at stake may fear unlimited liability.

The partnership agreement

The partnership agreement is the set of terms the partners accept. It matters because the accounts depend on it: without agreed terms nobody can tell what interest, salary or profit each partner should receive, and arguments follow. Typical contents:

• the capital each partner will invest;
• the profit-sharing ratio, also used for losses;
• the rate of interest on capital, if any;
• the rate of interest charged on drawings, if any;
• partners’ salaries;
• the rate of interest on partners’ loans;
• how and when drawings may be taken.

If a question gives no term for an item, do not invent one.

What the appropriation account is for

The statement of profit or loss measures what the business earned. The appropriation account shows how that profit is divided among the partners under the agreement. It gives the figures to post to the current accounts.

Item	Where it goes	Effect on the partner’s current account
Interest on a partner’s loan	Charged as a business expense, above profit for the year	Credit (if not paid in cash)
Interest on capital	Deducted in the appropriation account	Credit
Partners’ salaries	Deducted in the appropriation account	Credit
Interest on drawings	Added in the appropriation account	Debit
Balance left over	Divided using the agreed ratio	Credit for a profit, debit for a loss

A loan is a liability, so its interest is a business expense. Interest on capital and salaries are shares of profit, so they come after profit for the year. Drawings themselves are not in the appropriation account: they are debited to the current accounts.

Worked example 1: a trading partnership with year-end adjustments

Thea Corbett and Joaquin Quill trade as Corbett and Quill Garden Supplies. The year ends on 30 June 2028. The agreement gives: interest on capital at 4% a year; a salary of $9,000 for Quill; interest on drawings (Corbett $540, Quill $410); interest on Quill’s loan at 6% a year, credited to his current account; and remaining profit shared Corbett 3 : Quill 2. Capital accounts are fixed. All amounts are in dollars.

Trial balance at 30 June 2028
                                      Dr        Cr
Revenue                                    214,000
Inventory at 1 July 2027          18,500
Purchases                        121,000
Wages                             38,400
Rent                              12,000
Insurance                          3,600
Electricity                        4,100
Irrecoverable debts                  700
Premises                          80,000
Equipment at cost                 60,000
Accumulated depreciation:
  equipment                                 18,000
Trade receivables                 14,500
Allowance for irrecoverable debts            400
Bank                              23,000
Trade payables                             11,200
Loan from Quill                            20,000
Capital: Corbett                           90,000
Capital: Quill                             55,000
Current account: Corbett                    2,300
Current account: Quill             1,100
Drawings: Corbett                 12,000
Drawings: Quill                   22,000
                                 410,900  410,900

Adjustments: closing inventory $21,300; rent owing $1,000; insurance paid in advance $600; depreciate equipment at 10% a year on cost; make the allowance for irrecoverable debts 5% of trade receivables; charge the loan interest.

Corbett and Quill Garden Supplies
Statement of profit or loss, year to 30 June 2028
Revenue                                           214,000
Inventory at 1 July 2027             18,500
Purchases                           121,000
                                    139,500
Less inventory at 30 June 2028       21,300
Cost of sales                                     118,200
Gross profit                                       95,800
Less expenses
Wages                                38,400
Rent (12,000 + 1,000)                13,000
Insurance (3,600 - 600)               3,000
Electricity                           4,100
Irrecoverable debts                     700
Increase in allowance (725 - 400)       325
Depreciation: equipment               6,000
Interest on loan (6% x 20,000)        1,200
                                                   66,725
Profit for the year                                29,075

Appropriation account for the year ended 30 June 2028
Profit for the year                                29,075
Add Interest on drawings
  Corbett                               540
  Quill                                 410
                                                      950
                                                   30,025
Less Interest on capital
  Corbett (4% x 90,000)               3,600
  Quill (4% x 55,000)                 2,200
                                      5,800
Less Salary: Quill                    9,000
                                                   14,800
Balance of profit shared                           15,225
  Corbett (3/5)                       9,135
  Quill (2/5)                         6,090
                                                   15,225

Current account: Corbett
Drawings        12,000  Balance b/d            2,300
Interest on              Interest on capital   3,600
 drawings          540  Share of profit        9,135
Balance c/d      2,495
                15,035                        15,035
                         Balance b/d           2,495

Current account: Quill
Balance b/d      1,100  Interest on capital    2,200
Drawings        22,000  Salary                 9,000
Interest on              Interest on loan      1,200
 drawings          410  Share of profit        6,090
                         Balance c/d           5,020
                23,510                        23,510
Balance b/d      5,020

Quill’s account closes with a debit balance of $5,020: his drawings and interest ( $22,410) plus the $1,100 he already owed exceed the $18,490 credited to him. The capital accounts stay at $90,000 and $55,000, because nothing is posted to them unless capital is introduced or withdrawn.

Statement of financial position at 30 June 2028
                           Cost   Acc dep    NBV
Non-current assets
Premises                  80,000        -   80,000
Equipment                 60,000   24,000   36,000
                         140,000   24,000  116,000
Current assets
Inventory                                    21,300
Trade receivables (14,500 - allowance 725)   13,775
Other receivables (prepaid insurance)           600
Bank                                         23,000
                                             58,675
Current liabilities
Trade payables                    11,200
Other payables (rent owing)        1,000
                                             12,200
Net current assets                           46,475
Total assets less current liabilities       162,475
Non-current liabilities
Loan from Quill                              20,000
Net assets                                  142,475

                            Corbett    Quill    Total
Capital accounts             90,000   55,000  145,000
Current accounts              2,495   (5,020)  (2,525)
                             92,495   49,980  142,475

Check: net assets equal the partners’ capital and current accounts ($142,475). The loan is a liability, not capital.

Worked example 2: when the appropriations exceed the profit

Petra Ingram, Leona Elwick and Chidi Nkemelu run a design consultancy. Profit for the year was $11,600. Interest on capital is 5% on fixed capitals of Ingram $60,000, Elwick $40,000 and Nkemelu $20,000. Salaries: Elwick $7,000, Nkemelu $10,500. Interest on drawings: Ingram $300, Elwick $200, Nkemelu $100. The balance is shared 2 : 2 : 1.

Appropriation account
Profit for the year                                  11,600
Add Interest on drawings (300 + 200 + 100)              600
                                                     12,200
Less Interest on capital (3,000 + 2,000 + 1,000)      6,000
                                                      6,200
Less Salaries (7,000 + 10,500)                       17,500
Balance of loss                                     (11,300)
  shared Ingram (2/5)                 (4,520)
  Elwick (2/5)                        (4,520)
  Nkemelu (1/5)                       (2,260)
                                                    (11,300)

Interest and salaries are still credited to the partners, because the agreement entitles them to it. The shortfall is a loss, divided in the agreed ratio and debited to the current accounts. Suppose Ingram opened the year with a credit balance of $2,100 and drew $4,000. Her credits are $2,100 and $3,000 (interest on capital); her debits are $4,000, $300 and $4,520. Debits $8,820 less credits $5,100 leave a debit balance of $3,720.

Capital and current accounts

The capital account records what the partner has invested for the long term. It gives a stable measure of each person’s stake and is the base for interest on capital. It normally stays the same from year to year and changes only when capital is put in or taken out.

The current account is the working account between the partner and the business. It collects everything that changes during the year: interest and salary earned, the share of profit or loss, drawings and interest on drawings. It can be a credit balance (the business owes the partner) or a debit balance (the partner has taken more than their entitlement). So the capital account is long term and fixed, the current account is yearly and moving.

In the statement of financial position, show each partner’s capital and current account in columns with totals, as in example 1.

Common errors

• Putting loan interest in the appropriation account instead of expenses.
• Subtracting interest on drawings instead of adding it.
• Posting drawings to a fixed capital account.
• Sharing a loss equally when the ratio is different.
• Starting from profit before the adjustments and loan interest.

Next steps

Try the partnership practice questions, then revise from the revision notes. For the wider topic see the Topic 5 revision notes and practice.

Frequently asked questions

What does a partnership agreement usually include? It usually sets out each partner’s capital, the profit-sharing ratio (also used for losses), interest on capital, interest on drawings, partners’ salaries, interest on partners’ loans and how drawings may be taken. If a question gives no term for an item, do not invent one.

What is the purpose of a partnership appropriation account? The appropriation account shows how the profit for the year is divided among the partners under the agreement. It starts from profit for the year and gives the figures posted to the partners’ current accounts.

What is excluded from section 5.2 Partnerships in Cambridge IGCSE Accounting 0452? The syllabus excludes questions on ending a partnership, altering the profit-sharing ratio and limited liability partnerships. Financial statements are also not prepared when a partner joins or leaves.

Why is interest on a partner’s loan not in the appropriation account? A partner’s loan is a liability of the business, so its interest is a business expense deducted before profit for the year. Interest on capital and salaries are shares of profit, so they come after profit for the year.

What is the difference between a partner’s capital account and current account? The capital account records the long-term investment and normally stays the same unless capital is introduced or withdrawn. The current account collects interest, salary, the share of profit or loss, drawings and interest on drawings during the year.

Official syllabus

Cambridge IGCSE Accounting 0452 syllabus for exams in 2027, 2028 and 2029 (version 1), Cambridge University Press & Assessment, section 5.2 Partnerships.