If both parties agree to share the risk in a business arrangement, which type of accounting contract is most appropriate to use?

• A. Employment contract
• B. Fixed-fee contract
• C. Partnership agreement
• D. Lease agreement

Answer: (C)

Verified step by step guidance

1. Understand the concept of risk-sharing in a business arrangement. Risk-sharing typically involves both parties agreeing to jointly bear the financial risks and rewards of the business venture.
2. Review the types of accounting contracts provided in the problem: Employment contract, Fixed-fee contract, Partnership agreement, and Lease agreement.
3. Analyze each option: Employment contracts are typically used for hiring employees and do not involve risk-sharing. Fixed-fee contracts involve a set payment for services and do not account for shared risks. Lease agreements pertain to renting assets and do not involve risk-sharing in business operations.
4. Focus on the Partnership agreement: This type of contract is specifically designed for situations where two or more parties agree to share the risks, profits, and losses of a business venture.
5. Conclude that the Partnership agreement is the most appropriate type of accounting contract for risk-sharing in a business arrangement, as it aligns with the concept of joint financial responsibility.