What Is Partner's Capital on a Balance Sheet?
A balance sheet shows the value of all the items that a business owns, as well as the sources of funds for those items. Partner's capital does not appear on every balance sheet; only a business that gets at least some of its funds from the partners of the business includes it on the balance sheet.
A company that includes partner's capital on the balance sheet has the structure of a partnership. This means that two people or more co-own the business and contribute their assets and liabilities to the business. If the business earns or purchases an asset, it becomes a property of all the partners. A partnership usually runs according to a written or oral agreement between all the partners. Partner's capital on the balance sheet shows the contribution of each partner to the business.
A business gets its funds from either liabilities or equity. Liabilities refer to the debts of the business; the business must pay back these debts by certain deadlines or face consequences imposed by the creditors. Liabilities include bank loans, accounts payable and taxes payable. Equity refers to the portion of the business' resources that come from its owners. Depending on the company structure, these owners may be shareholders, a sole owner or partners.
A partnership usually prepares a financial document known as the statement of partner's capital. This document details the contributions of each partner and the balance of each partner's equity in the business over a period of time, usually one year. It starts with the balance at the beginning of the period, then adds the profit or loss attributed to each partner. If the partner withdraws money from the business, then this amount is deducted from the balance to get the ending balance.
Partner's capital appears on the balance sheet beneath the section that details the business' liabilities. It spells out the ending balance of each partner, then adds up the ending balances of all the partners. If you add up the total ending balance of all the partners with the business' liabilities, the resulting figure should equal that of the business' total assets.