A partner’s salary is taken out of profit in the appropriation account. An employee’s wage is deducted as an expense before the net profit is reached.
This lesson is part of the partnership worked set. The facts of the set, including Jia Wen’s salary and the clerk’s wage, are listed there.
How do I tell them apart?
Ask whether the person is an owner. A partner is an owner, so a partner’s salary is an appropriation of profit. A clerk is not an owner, so the clerk’s wage is a cost of running the firm.
| Feature | Partner’s salary | Employee’s wage |
|---|---|---|
| Who receives it | An owner | A non-owner |
| Where it is recorded | Appropriation account | Statement of profit or loss |
| Effect on net profit | None | Reduces it |
| Recorded in the partner’s | Current account (credit) | Not applicable |
Worked example: Hafiz and Jia Wen
The firm pays its clerk RM1 500 a month, so wages are 12 × 1 500 = RM18 000. That wage is already deducted in arriving at the net profit of RM84 000.
Jia Wen’s salary is RM1 200 a month, which is 12 × 1 200 = RM14 400. It is not deducted to reach the net profit. It appears in the appropriation account below the net profit, and it is credited to her current account.
| Line | RM |
|---|---|
| Net profit (after the clerk’s wage of RM18 000) | 84 000 |
| Less Jia Wen’s salary | (14 400) |
The salary reduces the profit available for sharing in the ratio. It does not reduce the net profit of the firm, which remains RM84 000 in the final total shared among the partners.
The mistake that costs marks
The common slip is to treat Jia Wen’s salary as a wage expense, deducting it in the statement of profit or loss. The net profit then falls to 84 000 − 14 400 = RM69 600.
| Step | Wrong | Right |
|---|---|---|
| Place of the salary | Expense | Appropriation |
| Net profit | RM69 600 | RM84 000 |
| Total shared among partners | RM69 600 | RM84 000 |
The partners’ totals then add to RM69 600 and do not match the firm’s profit of RM84 000. Keeping this separate makes the final reconciliation work.
Check yourself
A firm’s net profit is RM40 000 after a clerk’s wage of RM12 000. Partner X has a salary of RM10 000. There is no interest on capital, and profit is shared 1:1. Find each partner’s total.
Answer
The clerk’s wage is already deducted. The salary is appropriated: residual = 40 000 − 10 000 = RM30 000, so each gets 15 000.
X: 10 000 + 15 000 = RM25 000. Y: RM15 000. Check: 25 000 + 15 000 = RM40 000.
What to study next
Next, post these figures in separating capital and current account movements. You can rehearse entries in the debit-credit transaction trainer.
If you want a teacher to check your classification of items, see online one-to-one Accounting tuition.