Partnership Financial Statements vs. Proprietorship Financial Statements

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A partnership is a business owned and operated by two or more partners, while a sole proprietorship is a business owned by one person or a husband and wife. Partnerships and sole proprietorships are not required to create financial statements, but it is advisable to do so, because financial statements contain important information that helps managers, owners and creditors make business decisions.

Significance

The balance sheet, statement of cash flows, income statement and statement of owners’ equity are the financial statements that partnerships and sole proprietorships create. Financial statements are the same in a sole proprietorship as a partnership except when it comes to partner equity accounts, the CliffsNotes website explains. Withdrawal accounts appear on a sole proprietor or partnership balance sheet. When it comes to a partnership, each owner has a separate account used to track the amount each partner withdraws from the business. A sole proprietorship only has one owner, meaning one withdrawal account appears on a sole proprietor’s balance sheet.

Owners' Equity

The statement of owners’ equity illustrates changes in equity over the accounting period. The amount of money retained in a partnership or a sole proprietorship is affected by the amount of money owners withdraw from the business and the amount of income generated for the period. The statement of owners’ equity illustrates the beginning balance in a sole proprietor or partnership capital account. Net income for the period increases the capital account, while a net loss decreases a sole proprietor or partnership capital account. Withdrawals from the business cause a decrease in the company’s capital account. The statement of owners’ equity reveals the ending balance in a partnership or sole proprietor capital account.

Balance Sheet

A balance sheet indicates the financial position of a sole proprietorship or partnership at a specific point in time. The balance sheet lists the assets, liabilities and owners’ equity of the business. Assets are resources controlled by the business that present a future economic value. Liabilities are obligations a partnership or sole proprietorship owes to creditors, vendors and lenders. Owners’ equity indicates the investment of a sole proprietor or the investment partners have in a partnership. In the case of a sole proprietorship, equity is represented on the balance sheet by the name of the owner followed by the word “capital,” according to the QuickMBA website. In a partnership, the name of each partner is followed by the word “capital” in the equity section of the balance sheet.

Considerations

The income statement, also referred to as a statement of profit and loss, is one of the most important financial statements for a partnership and a sole proprietorship. An income statement indicates the amount of money made or lost for the period. Net income or net loss from the income statement is transferred to the partnership or sole proprietor’s capital account. In a partnership and sole proprietorship, the capital account appears on the equity section of the balance sheet.

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