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In a partnership, what does the term 'profit-sharing ratio' refer to?

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Question: In a partnership, what does the term \'profit-sharing ratio\' refer to?

Options:

  1. The ratio of profits to losses
  2. The percentage of profits each partner receives
  3. The ratio of capital contributions
  4. The ratio of partners to employees

Correct Answer: The percentage of profits each partner receives

Solution: 

The profit-sharing ratio refers to the percentage of profits that each partner receives, which may differ from their capital contributions.

In a partnership, what does the term 'profit-sharing ratio' refer to?

Practice Questions

Q1
In a partnership, what does the term 'profit-sharing ratio' refer to?
  1. The ratio of profits to losses
  2. The percentage of profits each partner receives
  3. The ratio of capital contributions
  4. The ratio of partners to employees

Questions & Step-by-Step Solutions

In a partnership, what does the term 'profit-sharing ratio' refer to?
  • Step 1: Understand that a partnership is a business owned by two or more people.
  • Step 2: Know that when the business makes money, it has profits.
  • Step 3: Realize that partners need to decide how to share these profits.
  • Step 4: The 'profit-sharing ratio' is the way partners agree to divide the profits.
  • Step 5: This ratio can be different from how much money each partner put into the business.
  • Profit-Sharing Ratio – The percentage of profits allocated to each partner in a partnership, which may not correspond to their initial capital contributions.
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