Help me in accounting, about the formation of partnership!?

Question

Why would a partnership decideto use the books of one of the previous sole proprietors instead of opening new set of books?

Answer 1

because the assets are transferred to the new partnership..you really should use new books though..because the assets will most likely come from more than one person...

Answer 2

Well there is not simple answer. You asked, why would they do, sometimes they do it for the right reason and sometimes because they are stupid, greedy or lazy.

So I guess your question is, when is it most appropriate to continue using the books of the previously existing sole proprietor when forming a partnership.

The answer is, when it makes things easier or gives you a financial advantage.

Many people are chosing to setup limited liability companies instead of partnerships because of the tax advantages and though it also creates more work in terms of book keeping and tax reporting.

If two sole proprietors are merging then perhaps they would close off the old books and start again from fresh.

If one person is joining another sole proprietor then they would be likely to continue the other set of books for simplisity.

I am assuming that you are talking about something in between, with one well established person being joined by someone who is less well established.

Generally, if you have successful business you should have an accountant. Unless you know tax and business law, then an accountant would be the person to advise on the best and most legal way of doing things.

If you are having misgivings about the trustworthiness of your business partner, I would recommend using an accountant as well.

Answer 3

Seems like the person who originally had the books already started up the business and has prior knowledge of it.

It would be a waste of time and effort to rewrite the same thing over again.

Answer 4

i did not take partnership accounting, but i presume reasons could be continuity and insurance coverage.