Accounting

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Accounting

  1. 1. ACCOUNTING For sole and Partnership firm
  2. 2. Accounting terms  Assets: Assets are the properties or resources which are owned by the business entity. In general these are the things which are used to facilitate business and not to sell them.  Assets may be further classified as Tangible assets and intangible assets.
  3. 3. Accounting terms (Cont...)  Tangible assets: are those assets which have physical existence, i.e., we can touch, see these assets. Examples are land and building, plant, machinery, cash etc.  Intangible assets: cannot be seen or touched.
  4. 4. Accounting terms (Cont...)  Liabilities: Liabilities are the debts owed by the business entity to outsiders.  Capital: Capital represents the owner’s claim or share in the assets of the business. In common sense, capital is the amount invested by the proprietor in his business. In Accountancy, capital is defined as the excess of the value of assets over the liabilities. It can be shown with the equation.  Capital = Assets - Liabilities
  5. 5. Accounting terms (Cont...) Drawings: Drawings means the amount of cash or any asset withdrawn by the owner of the business for his personal or domestic use.  Debtor: Debtor is a person who owes any amount to another person. In case of a business, debtor is a person who has purchased some goods on credit. Until he pays the due amount he remains as a debtor in the books of the business.
  6. 6. Accounting terms (Cont...)  Creditor: Creditor is a person to whom any sum is owed i.e. payable by the business. Solvent: Solvent is a person whose assets are equal to or more than that of his liabilities. It means, he is capable of paying all his dues/debts in full.
  7. 7. Accounting terms (Cont...)  Net Worth: Net Worth of a business means the aggregate amount of proprietor’s capital, reserves and accumulated profits. The equation is, Net Worth = Capital +Reserves +Profits (or – losses)  In simple words: Net Worth = Total Assets – Outside liabilities
  8. 8. Accounting terms (Cont...)  Goods: The term “Goods” includes all commodities, articles or products which are purchased for the purpose of resale. Goods refer to any type of merchandise in which a trader deals in.  Purchases: Purchases means goods purchased for resale. Such purchases may be for cash or on credit. But any materials purchased for use in the office are not termed as purchases. Purchases are the goods clearly meant for resale by the businessman.
  9. 9. Accounting terms (Cont...)  Sales: The term “Sales” means goods sold for cash or on credit. But it does not include sale of any asset. Sales constitute the revenue of the business.  Purchases Returns (or Returns Outwards): Means the goods which are purchased are returned to the supplier for reasons such as damages, poor quality, overcharging, not as per order etc.
  10. 10. Accounting terms (Cont...)  Sales Returns (or Returns Inwards): Means the goods which were sold to customers are now returned for the reasons mentioned above.  Stock: On any given date, there will be some goods which remains unsold. Thus stock is the value of such unsold goods.
  11. 11. For Sole Proprietorship  Profit and Loss Account (P&L Account) Particulars Rs . Particulars Rs. To Profit and Loss A/c(loss transferred from Profit & Loss A/c) To Salary To Commission To Interest on Capital To Reserve A/c To Profit transferred to current account By Profit and Loss account(Profit transferred from P & L account) By Interest on Drawings By Loss transferred to current accounts
  12. 12. Profit and Loss Appropriation Account Particulars Total Add Less Net profit Interest on drawings Interest on capital Commission Salary XXX XXX XXX XXX XXX XXX XXX XXX XXX
  13. 13. For Partnership Firm  Partners' Current Account Particulars Partner A Partner B Particulars Partner A Partner B Balance b/d Drawings Interest on drawings Balance c/d Balance b/d XXX XXX XXX XXX XXX XXX1 XXX3 XXX XXX XXX XXX XXX XXX2 XXX4 Balance b/d Interest on Capital Salary Commission Share of Profits Balance c/d Balance b/d XXX XXX XXX XXX XXX XXX XXX3 XXX XXX1 XXX XXX XXX XXX XXX XXX XXX4 XXX XXX2
  14. 14. Profit and Loss Appropriation Account Particulars Total Add Less Net profit Interest on drawings Partner A (XXX) Partner B (XXX) Interest on capital Partner A (XXX) Partner B (XXX) XXX XXX XXX XXX XXX XXX XXX XXX XXX CONT…
  15. 15. Profit and Loss Appropriation Account (Cont…) Particulars Total Less Less Commission Partner A (XXX) Partner B (XXX) Salary Partner A (XXX) Partner B (XXX) XXX XXX XXX XXX XXX XXX XXX XXX XXXX CONT…
  16. 16.  Consider Partner A’s and Partner B’s share in business is in the ratio of 50:50  Then profit or loss for partners are as bellow:  Partner A (1/2 * XXXX) = XXX  Partner B (1/2 * XXXX) = XXX

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