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(120)-LEDGER ACCOUNTS AND LIMITED COMPANIES

Monday, March 8, 2010

Ledger Accounts and Limited Companies

Limited companies keep ledger accounts and the only difference from sole trader, is the nature of some of the transactions, assets and liabilities.

Taxation
  • Tax charged against profits will be accounted by:
    Profit and loss account – Debit
    Taxation account - Credit
  • The outstanding balance on the taxation account will be a liability in the balance sheet, until eventually paid, when the accounting entry would be:
    Taxation account – Debit
    Cash – Credit


Dividends


A separate account will be kept for the dividends for each different class of shares.

  • Dividends declared out of profits will be accounted for by:
    Profit and loss appropriation account – Debit
    Dividends payable account – Credit
  • When dividends are paid:
    Dividends payable account – Debit
    Cash – Credit


Debenture Loans


Debenture loans being a long term liability will be shown as a credit balance in a debenture loan account.

  • Interest payable on such loans is not credited to the loan account, but is credited to a separate creditor’s account for interest until it is eventually paid:
    Interest account (Expense) – Debit
    Interest payable (Current liability) – Credit
  • When paid, the entries are:
    Interest payable – Debit
    Cash – Credit


Share capital and reserves


There will be a separate account for:

  • Each different class of share capital
  • Each different type of reserve

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