Two friends are considering the formation of a partnership to operate a crafts and hobbies store. They have come to you to obtain information about the basic elements of a partnership agreement.

Partnership agreements usually specify an income and losssharing ratio. The agreements also may provide for such additional income and losssharing features as salaries, bonuses, and interest allowances on invested capital.

Required for Initial Discussion Post:

Discuss why a partnership agreement may need features in addition to the income and losssharing ratio. Discuss the advantages and disadvantages of recording salary and bonus allowances to partners as expenses included in computing net income.