Partnership Formation and GAAP

Abstract

This article explains the importance of partnership formation in the U.S. economy, presents the basis for GAAP accounting for partnership formation based on the Codification, and provides a set of teaching materials that illustrate consistent financial reporting for partnership formation. The article discusses accounting controversies in the area of partnership formation and documents limitations in current advanced accounting textbooks that present partnership formation. The typical accounting textbook covers partnership formation lightly and at odds with GAAP-compliant, SEC-reporting partnerships. The issue of the contribution of net assets versus contribution of a business, as discussed in Nurnberg (2014), is ignored in textbooks, resulting in the misapplication of GAAP when prior businesses are involved in partnership formation.