GAAP for Partnerships

On Demand Webinar

Webinar Details $219

  • Rated:
  • Webinar Length: 100 Minutes
  • Guest Speaker:   Chuck Borek
  • Topic:   Taxation and Accounting
  • Credit:   CPE 2.0, ATATX 1.5
All Access Membership

While typical partnership accounting questions involve tax issues, generally accepted accounting principles apply to these businesses and can be important to creditors, regulatory agencies, and investors. Unlike tax rules, GAAP is designed to effectively communicate the true economic picture of an enterprise. This course will survey how GAAP rules affect the financial statements of partnerships, comparing and contrasting those rules with relevant tax concepts.

Topics Covered:

  • Is There a Specialized Partnership GAAP?
  • GAAP vs. Tax Capital Accounts
  • GAAP vs. the Rules of Code Section 704(b)
  • Effect of the Admission of New Owners on GAAP Capital Accounts
  • Effect of Redemption on GAAP Capital Accounts 

Level: Intermediate
Format: Webcast
Instructional Method: 
NASBA Field of Study: Accounting
Program Prerequisites: None
Advance Preparation: None

  1. Introduction
  2. Types of Partnerships 00:03:42
  3. The Nature of Partnerships: Aggregate vs. Entity 00:17:02
  4. Why GAAP? 00:19:30
  5. When is GAAP Used for Partnerships? 00:21:34
  6. What is Distinctive about GAAP for Partnerships? 00:23:47
  7. Contribution of Assets 00:25:07
  8. Contribution of Assets Cont’d 00:28:45
  9. Balance Sheet 00:32:32
  10. Contribution of Assets Subject to Liabilities 00:34:42
  11. Contribution of Assets 00:35:40
  12. Balance Sheet 00:36:13
  13. Journal Entries 00:38:14
  14. Journal Entry Example 00:40:57
  15. Alternatives 00:44:36
  16. 704(b) Book Basis 00:47:36
  17. Don’t Get Confused! 00:52:59
  18. Capital Accounts 00:52:26
  19. Basis 00:54:40
  20. Increases and Decreases - Cash Contributions 00:56:14
  21. Increases and Decreases - Property Contributions 00:59:13
  22. Increases and Decreases - Income 00:58:56
  23. Increases and Decreases - Cash Distributions 01:01:59
  24. Increases and Decreases - Property Distributions 01:02:20
  25. Increases and Decreases - Losses 01:02:41
  26. Illustration of Basis/Cap Acct Difference 01:03:12
  27. When Will Capital Account = Basis? 01:05:50
  28. Example: Differences 01:06:38
  29. Example: Differences: Tax 01:07:49
  30. Example: Differences: GAAP 01:10:26
  31. Example: Differences: 704(b) 01:13:53
  32. Code Section 704(c)(1)(A)  01:14:47
  33. Accomplishing Purpose of §704(c)(1)(A) 01:16:20
  34. Reasonable Allocation Methods 01:16:29
  35. Traditional Method 01:16:53
  36. Traditional Method Example - Three Equal Partners 01:17:25
  37. Traditional Method Example - Book Depreciation 01:18:43
  38. Traditional Method Example  - 1st 01:19:12
  39. Traditional Method Example - 2nd 01:19:40
  40. The Ceiling Rule Problem 01:20:29
  41. What if There are No Other Items of Depreciable Property? 01:21:12
  42. What if There are No Other Items of Depreciable Property? Cont’d 01:21:25
  43. Remedial Allocations Method 01:21:52
  44. Example 01:22:31
  45. Transactions with New Owners 01:24:53
  46. Goodwill Method 01:29:20
  47. Bonus Method 01:30:37
  48. An Alternative: Section 704(b) Revaluations 01:32:40
  49. Example 01:33:11
  50. Example Cont’d 01:33:58
  51. Example Cont’d 01:34:53
  52. Draws” vs. Guaranteed Payments 01:36:14
  53. Retirement Payments to Partners 01:38:30
  54. Retirement Payments to Partners: 3 Basic Requirements 01:38:39
  55. Retirement Payments to Partners: 3 Additional Requirements 01:39:13
  56. Presentation Closing 01:40:51
  • 704(b) Book Basis 00:44:41, 00:47:29, 00:48:56, 00:52:51, 01:02:47, 01:13:57, 01:32:45
  • Accelerated Depreciation 01:00:49
  • Accounting (ACCG) 00:19:45, 00:27:39, 01:24:51
  • Asset 00:25:07, 00:29:08, 00:33:01, 00:34:59, 00:43:00, 00:54:26, 01:21:09, 01:29:32
  • Balance Sheet (BS) 00:21:53, 00:32:27, 00:36:13, 01:04:18
  • Bonus Method 01:30:37
  • Capital (CAP) 00:26:45, 00:40:36, 00:43:11, 00:54:05
  • Depreciable Property 01:21:12
  • Depreciation 00:27:36, 01:15:39
  • Equity 00:24:04, 00:33:03, 00:43:11, 00:54:16
  • Fair Market Value (FMV) 00:58:32, 01:02:31, 01:03:39, 01:07:21, 01:12:11, 01:22:46
  • Fair Value 00:28:59, 00:30:34, 00:32:52, 00:39:28
  • Financial Statement 00:23:17
  • Generally Accepted Accounting Principles (GAAP) 00:00:07, 00:02:07, 00:19:30, 00:21:01, 00:28:49, 00:32:56, 00:44:29, 00:59:08, 01:06:56, 01:10:51
  • General Partnership (GP) 00:04:35
  • Goodwill Method 01:29:44
  • Joint Venture (JV) 00:15:35
  • Liability 00:34:48, 00:43:06, 01:04:26
  • Limited Liability Company (LLC) 00:08:59
  • Limited Liability Limited Partnership (LLLP) 00:08:53, 00:15:32
  • Limited Liability Partnership (LLP) 00:08:51
  • Limited Partnership (LP) 00:06:51, 00:15:29
  • Non-Profit Organizations (NPO) 00:16:25
  • Present Value (PV) 00:35:07
  • Publicly Traded Partnerships (PTP) 00:16:44, 00:22:37
  • Remedial Allocations Method 01:21:52
  • S Corporation 00:47:14
  • Shareholder 00:10:58
  • Sole Proprietor 00:19:22
  • Tax Basis 00:44:38, 00:52:36, 01:02:52, 01:06:57, 01:10:41, 01:17:33
  • The Ceiling Rule 01:20:30
  • Transaction 00:41:03, 00:52:27, 01:03:02

704(b) Book Basis: The aim of 704 (b) books is to disclose the substantial economic effect of the allocation among partners. According to the regulations defined in 704 (b), capital accounts should be maintained as per the specific rules that are neither a part of GAAP or tax.

Accelerated Depreciation: Accelerated depreciation refers to any one of several methods by which a company, for 'financial accounting' or tax purposes, depreciates a fixed asset in such a way that the amount of depreciation taken each year is higher during the earlier years of an asset's life.

Accounting (ACCG): A systematic way of recording and reporting financial transactions for a business or organization.

Asset: Property owned by a person or company, regarded as having value and available to meet debts, commitments or legacies.

Balance Sheet (BS): A financial report that summarizes a company's assets (what it owns), liabilities (what it owes) and owner or shareholder equity at a given time.

Bonus Method: According to the bonus method, partners who contribute intangible assets (such as sweat equity or expertise) are providing more capital to the company than they actually did in cash.

Capital (CAP): A financial asset or the value of a financial asset, such as cash or goods. Working capital is calculated by taking your current assets subtracted from current liabilities—basically the money or assets an organization can put to work.

Depreciable Property: Depreciable property is any asset that is eligible for tax and accounting purposes to book depreciation in accordance with the Internal Revenue Service (IRS) rules. Depreciable property can include vehicles, real estate (except land), computers, and office equipment, machinery, and heavy equipment.

Depreciation: A reduction in the value of an asset with the passage of time, due in particular to wear and tear.

Equity: The total value of your business after you’ve subtracted what you owe [“liabilities”] from what you own [“assets”].

Fair Market Value (FMV): The term fair market value is used throughout the Internal Revenue Code among other federal statutory laws in the USA including Bankruptcy, many state laws, and several regulatory bodies. In litigation in many jurisdictions in the United States, the fair market value is determined at a hearing.

Fair value: Fair value is a broad measure of an asset's worth and is not the same as market value, which refers to the price of an asset in the marketplace. In accounting, fair value is a reference to the estimated worth of a company's assets and liabilities that are listed on a company's financial statement.

Financial Statement: Financial statements (or financial reports) are formal records of the financial activities and position of a business, person, or other entity. ... A balance sheet or statement of financial position, reports on a company's assets, liabilities, and owners equity at a given point in time.

General Partnership (GP): A general partnership, the basic form of partnership under common law, is in most countries an association of persons or an unincorporated company with the following major features: Must be created by agreement, proof of existence and estoppel.

Generally Accepted Accounting Principles (GAAP): A set of rules and guidelines developed by the accounting industry for companies to follow when reporting financial data. Following these rules is especially critical for all publicly traded companies.

Goodwill Method: Goodwill is an intangible asset that arises when a business is acquired by another. One of the simplest methods of calculating goodwill for a small business is by subtracting the fair market value of its net identifiable assets from the price paid for the acquired business.

Joint Venture (JV): US GAAP currently treats certain transactions involving joint ventures differently from transactions involving other businesses and joint arrangements. There is no authoritative guidance related to the accounting applied by a joint venture when recognizing noncash assets contributed at its formation.

Liability: In financial accounting, a liability is defined as the future sacrifices of economic benefits that the entity is obliged to make to other entities as a result of past transactions or other past events, the settlement of which may result in the transfer or use of assets, provision of services or other yielding of economic benefits in the future.

Limited Liability Company (LLC): An LLC is a corporate structure where members cannot be held accountable for the company’s debts or liabilities. This can shield business owners from losing their entire life savings if, for example, someone were to sue the company. Can be a single member (much like a sole proprietor) or a multi-member. It shares certain traits of both corporations as well as partnerships or sole proprietorships. It is not a corporation.

Limited Liability Limited Partnership (LLLP): An LLLP is a limited partnership, and it consists of one or more general partners who are liable for the obligations of the entity, as well as or more protected-liability limited partners. Typically, general partners manage the LLLP, while the limited partners' interest is purely financial. Thus, the most common use of limited partnership is for purposes of investment.

Limited Liability Partnership (LLP): A limited liability partnership is a partnership in which some or all partners have limited liabilities. It therefore can exhibit elements of partnerships and corporations. In an LLP, each partner is not responsible or liable for another partner's misconduct or negligence.

Limited Partnership (LP): A limited partnership is a form of partnership similar to a general partnership except that while a general partnership must have at least two general partners, a limited partnership must have at least one GP and at least one limited partner.

Non-Profit Organizations (NPO): A nonprofit organization (NPO) or non-profit organisation, also known as a non-business entity, or nonprofit institution, is a legal entity organized and operated for a collective, public or social benefit, in contrary with an entity that operates as a business aiming to generate a profit for its owners.

Present Value (PV): The current value of a future sum of money based on a specific rate of return. Present value helps us understand how receiving $100 now is worth more than receiving $100 a year from now, as money in hand now has the ability to be invested at a higher rate of return. See an example of the time value of money here.

Publicly Traded Partnerships (PTP): A publicly traded partnership (PTP) is a business organization owned by two or more co-owners whose shares are regularly traded on an established securities market. A publicly traded partnership is a type of limited partnership managed by two or more general partners—including individuals, corporations, or other partnerships—and is capitalized by limited partners who provide capital but have no management role in the partnership.

Remedial Allocations Method: Remedial allocations are tax allocations of income or gain that are created by the partnership, and that are offset by similarly created tax allocations of loss or deduction by the partnership. These notional tax allocations have no effect on book income or capital accounts.

S Corporation: An S corporation, for United States federal income tax, is a closely held corporation that makes a valid election to be taxed under Subchapter S of Chapter 1 of the Internal Revenue Code. In general, S corporations do not pay any income taxes.

Shareholder: A shareholder is an individual or institution that legally owns one or more shares of stock in a public or private corporation. Shareholders may be referred to as members of a corporation.

Sole Proprietor: A business that legally has no separate existence from its owner. The sole proprietorship is the simplest business form under which one can operate a business. The sole proprietorship is not a legal entity. It simply refers to a person who owns the business and is personally responsible for its debts.

Tax Basis: A tax basis income statement includes the revenues and expenses recorded for the period. The revenues minus the expense equal the company's taxable income. Revenues that appear on the tax basis income statement only include payments received from customers.

The Ceiling Rule: Sec. 1.704(b), otherwise known as the ceiling rule. The rule stipulates that only individual partners can avail of allocations on gains and losses such that the collective amount of allocations provided for all partners should not be greater than the total income and deductions derived during the partnership.

Transaction: In QuickBooks, a transaction type identifies what kind of transaction occurred, such as a customer transaction, bill payment or a bank transfer. When you submit a transaction, you type in a transaction code to represent it.

Guest Speaker

  • Chuck Borek

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