The division of net income or net loss in a partnership is determined by the partnership agreement. If the agreement is silent on the matter, net income or net loss is typically shared equally among the partners. There are several ways that net income or net loss may be shared, including:
- A fixed ratio, expressed as a proportion or fraction
- A ratio based on capital balances at the beginning of the period
- Salaries to partners and the remainder on some basis
- Interest on partner's capital and the remainder on some basis
- Salaries to partners, interest on partners' capital, and the remainder on some basis
- Income sharing based on a bonus to the managing partner
Withdrawals in a partnership refer to the taking out of cash or other assets by a partner from the partnership. Withdrawals may be made in lieu of salary allowances or for personal purposes, and they are recorded by debiting the partner's drawing account and crediting the asset withdrawn.