CAPITAL• The money which an owner arranges for the business is called capital.• If owners keeps money in his pocket ,it is money not capital.• When money is put into a business activity, its name will be capital.• When capital is converted into business activity, it is converted into assets.
When one starts business, he will become different entity from the business for accounting purpose. Owner of business. Business.
If one starts business with Rs.10 M of his ownmoney, how will he record it?
Business manager or accountant will record it in this way .• What has come to him ?• Where has it come?
Business started with Rs.10M.Where has it come ? What has come ? (Rs in Millions)Source of Cash ? Cash 10
If the source of cash is owner. For accounting purpose, it is called Capital or Equity.
Business manager or accountant will record it in this way . ( Rs. in millions)Capital : 10 Cash: 10 __ ___Total 10 Total 10
With Rs.10M, business activity starts with buying of land for Rs.2M.How will it be recorded ?
CAPITAL CONVERSION INTO ASSETSCAPITAL ASSETS Rs. Rs.Capital : 10 millions. Cash: 8 millions. Land: 2 millions __ ___Total 10 Total 10
CAPITAL CONVERSION INTO ASSETSCAPITAL ASSETS Rs. Rs.Capital : 10 millions. Cash 6 millions. Land 2 millions. Building 2 millions. __ ___Total 10 Total 10
CAPITAL ASSETS Rs. Rs.Capital : 10 millions. Cash - millions. Land 2 millions. Building 2 millions. Inventory 8 millions __ ___Total Total 12
CAPITAL & LIABILITIES ASSETS Rs. Rs.Capital 10 millions. Cash - millions.Loan 2 millions Land 2 millions. Building 2 millions. Inventory 8 millions ___ ___Total 12 Total 12
CAPITAL CONVERSION INTO ASSETSCAPITAL& LIABIULITIEES ASSETS Cash Land Building Furniture Inventory.
ASSET• Asset is every conversion of money which helps to earn lawful profit.
ASSETSLONG TERM ASSETS/FIXED ASSETS.CURRENT ASSETS.OTHER ASSETSTANGIBLE ASSETS.INTANGIBLE ASSETS.
LONG TERM ASSETS/FIXED ASSET• Such assets which life is long.• Such assets are not consumed in a period of a year.• Land , building , plant and machinery are fixed assets.• Such assets can not easily be converted into cash.
CURRENT ASSETS• The life of such assets is not more than a year.• Such asset can easily be converted into cash.• Cash, Account receivable , inventory, marketable securities.
ACCOUNTS RECEIVABLE• Account receivable are also called debtors.• Suppose you have sold some goods on credit in November.• Money will be received after three months.• Your accounts are closed in December.• Such receivable money is called account receivable.• If it is receivable from more persons, it is called accounts receivable.
INVENTORY• Business raw material placed in the business wherehouse.• Sometimes such purchases are made in bulk and are gradually used.• The goods produced in a factory are also placed in the wherehouse.• All material purchased and goods produced and placed in wherehouse and named as inventory.• Work-in- process is also included in Inventory.
MARKETABLE SECURITIES• Usually business buys shares, debentures of other companies or bonds issued by Govt. for earning profit.• Such shares , debentures or bonds are marketable and can be sold at any time.
PREPAID EXPENSES• Advance income tax paid.• Advance sale tax paid.• Payment made to a contractor but services yet to be acquired.
OTHER ASSETS• Patent.• Trade marks.• Goodwill.
PATENTS• Rights for exclusive use of your invention.• Right for using your new recipe.• It requires registration from registrar of patents.
TRADE MARK• It is name of your product. It is symbol used on your product. It is any sign used by you for marketing your product.• It requires registration from registrar Trade Mark.
GOOD WILL• Good will is reputation of your business which you earn over the years.• When you buy some reputed business, you pay goodwill.
TANGIBLE ASSETS• The assets which can be touched.• Land, building, cash,etc.
INTANGIBLE ASSETS• Such assets can not be touched.• Goodwill.• Patent.• Trademarks.
LIABILITIES• Liability means borrowed money/ loan.• Liability means material or services purchased on credit where money is yet to be paid.• Bank loans, private loans, payment due for purchases, etc.
WHY DO YOU NEED LOAN?WHY DO YOU BUY THINGS ONCREDIT?
WHY LIABILITY?• You may have potential or expertise but not money.• Your goods have demand and you have capacity to produce but no money.• Borrowed money or deferred payment helps you in such situation.
KINDS OF LIABILITY• LONG TERMS LIABILITIES.• MEDIAM TERMS LIABILITIES.• CURRENT LIABILITIES.
LONG TERM LIABILITIES• Such liabilities may be payable over the period of 5 to 25 years or more.• Long term bank loans.• Debentures.
DEBENTURES• They are issued by limited companies and interest is paid against them.• Companies issue debenture certificates against receipt of money.• These are issued against over all assets of the company.• Debentures are having different kinds.• They may be traded like shares.
DIFFERENCE BETWEEN LOAN AND DEBENTURE• Loans are securitized against particular assets.• Mostly banks issue loans against mortgages and pledges.• Debentures are issued not against a particular asset, they are issued on security of whole company.
MEDIAM TERMS LIABILITIES• Such liabilities are payable between 01 to 05 years.CURRENT LIABILITIES• Such liabilities are payable within 01 year.• Short term loans.• Accounts payable.• Unpaid utility bills.• Unpaid wages.
ACCOUNTS PAYABLE• Suppose you have purchased raw material for your factory in November and is payable within 06 months.• Your accounts are closed in December.• Such payments are shown as Accounts payable.
CLASSIFY THE FOLLOWING ITEMS INTO LIABILITIES AND ASSETS• Motor vehicles.• Premises.• Accounts payable.• Inventory.• Accounts receivable.• Owing to bank.• Cash at bank.• Loan from A.• Loan to B.• Computer.• Outstanding fees of a consultant.• Patents.• Goodwill.• Capital.
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