Virtual University Course MGT101 - Financial Accounting Lecture No 31 Instructor's Name: Mr. Mujahid Eshai Course Email: mgt101@vu.edu.pk

1. Financial Accounting
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Lecture – 31
Different Business Entities
• Commercial Organizations
 Sole proprietorship
 Partnership, and
 Limited Company
• In commercial organizations profit is distributed among the
owners of the business.

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Different Business Entities
• Non-Commercial Organizations
 Co-operative institutions
 NGO’s
 Trusts
• In non-commercial organizations profit is not distributed but
is used for the objective of the organization.

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Sole Proprietorship
• Sole Proprietorship is a business owned and run by an
Individual called Proprietor / Sole Proprietor.
• It is the simplest form of business.

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Partnership
• Partnership is a business owned and run by more than one
persons called Partners.
• There can be a maximum of 20 partners.

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Partnership
• Partners in a partnership business are Jointly and Severally
liable for repayment of partnership’s liabilities.
• The liability of the partners is Unlimited.

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Limited Companies
• The liability of the owners is limited to the extent of funds
invested by them in the company.

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Journal Entries for Drawings Account
• Cash Drawn by Proprietor
Debit Proprietor’s Drawing
Credit Cash
• The balance in drawings account is transferred to Capital
Account at the year end.

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Sole Proprietor – Capital Account
Capital Account
Debit Side Credit Side
Date No Narration Dr. Rs. Date No Narration Cr. Rs.
Jun 30 Drawings 45,000 Jul 01 Balance B/F 100,000
Jun 30 P & L Account 50,000
Jun 30 Balance C/F 105,000
150,000 150,000
NOTE – height of the rows should be more than the font size.
This improves visibility on TV.

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Sole Proprietor – Capital Account
Capital Account
Debit Side Credit Side
Date No Narration Dr. Rs. Date No Narration Cr. Rs.
Jun 30 P & L Account 10,000 Jul 01 Balance B/F 100,000
Jun 30 Drawings 45,000
Jun 30 Balance C/F 45,000
100,000 100,000

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Balance Sheet - Sole Proprietor
Name of Business
Balance Sheet As At ----
Particulars Amount Rs. Amount Rs.
ASSETS
Fixed Assets
Long Term Assets
Current Assets
X
X
X
TOTAL X
LIABILITIES
Capital
Add: Profit / Loss For The Year
Less: Drawings
X
X
(X) X
Long Term Liabilities X
Current Liabilities X
TOTAL X

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Lecture – 31
Partnership – Capital Accounts
• Fixed Capital Account
 In this case capital account shows movement in capital
only i.e. actual increase or decrease in capital, by
partners.
 Other transactions such as Drawings and Profit etc. are
not recorded in capital account
• Fluctuating Capital Account
 In fluctuating capital account all transactions relating to
partners are recorded in capital account.

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Partnership – Current Accounts
• Fixed Capital Account
 In case of fixed capital accounts other transactions such
as Drawings and Profit etc. are recorded in a separate
account called Current Account.

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Partnership – Journal Entries
• Capital Introduced by Partner
Debit Cash / Bank
Credit Partner’s Capital Account
Separate capital account is opened in general ledger for
each partner.

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Partnership – Journal Entries
• Drawing by Partner
Debit Individual Partner’s Current Account
Credit Cash / Bank
• Excess Drawn Amount Returned by Partner
Debit Bank / cash
Credit Individual Partner’s Current Account
• Profit Distribution
Debit Profit and Loss Appropriation Account
Credit Partner A’s Current Account
Credit Partner B’s Current Account
Credit Partner C’s Current Account

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Balance Sheet - Partnership
Name of Business
Balance Sheet As At ----
Particulars Amount Rs. Amount Rs.
ASSETS
Fixed Assets
Long Term Assets
Current Assets
X
X
X
TOTAL X
LIABILITIES
Capital A
B
C
X
X
X X
Current Account A
B
C
X
X
X X
Long Term Liabilities X
Current Liabilities X
TOTAL X

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Lecture – 31
Limited Companies – Number of Shareholders
• Private Limited Company
 Two to fifty persons can form a private limited company.
 Minimum two members are elected to form a board. This
board is given the responsibility to run day to day
business of the company.

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Limited Companies – Number of Shareholders
• Public Limited Company
 Minimum Seven persons can form a public limited
company.

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Limited Companies – Shareholders
• Capital of the company is divided into small units /
denominations. These units / denominations are called
shares.
• Owners purchase these shares and are therefore called
shareholders.

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Limited Companies – Shareholders
• Capital of the company is divided into small units /
denominations. These units / denominations are called
shares.
• Owners purchase these shares and are therefore called
shareholders.

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Distribution of Profits
• The profit of company is distributed in the form of Dividend.