Non Statutory Reserves The company directors may choose to set up other reserves. These may have a specific purpose (e.g. plant and machinery replacement reserve) or not (e.g. general reserve). The creation of these reserves usually indicates a general intention not to distribute the profits involved at any future date, although legally any such reserves, being non-statutory, remain available for...
Wednesday, February 24, 2010
Tuesday, February 23, 2010
(116)-PROFIT AND LOSS RESERVES
Profit and Loss Reserves The most significant non-statutory reserve is variously described as: Revenue reserve Retained profits Retained earnings Undistributed profits Profit and loss account Un-appropriated profits These are profits earned by the company and not appropriated by dividends, taxation or other transfer to another reserves account. Provided that a company is earning profits, this reserve...
Monday, February 22, 2010
(115)-RESERVES
Reserves A company’s share capital will remain fixed from year to year, unless new shares are issued. Reserves are difficult to define neatly since different reserves arise for different reasons, but it follows from the above that: Reserves = net assets – share capital So the total amount of reserves in a company varies, according to changes in the net assets of the business. A distinction should...
Sunday, February 21, 2010
(114)-SHARE CAPITAL
Share Capital The net fixed assets of a company, plus the working capital (i.e. current assets minus current liabilities) minus the long term liabilities, are “financed” by the shareholders’ capital. Shareholders’ capital consists of both: The nominal value of issued capital (minus any amounts not yet called up on issued sharesReserves. The share capital itself might consist of both ordinary shares...
Saturday, February 20, 2010
(113)-TYPES OF SHARES
Types of Shares We can distinguish three types of shares, Preference shares Deferred shares Ordinary shares Preference shares Preference shares are shares which confer certain preferential rights on their holders.The rights attaching to preference shares are set out in the company’s contribution. They may vary from company to company, but typically: Preference shareholders have a priority right over...
Friday, February 19, 2010
(112)-THE SHARE PREMIUM
The Share premium By “premium” is meant the difference between the issue price of the share and its nominal value. When a company is first incorporated the issue price of its shares will probably be the same as their nominal value and so there would be no share premium. If the company does well the market value of its shares will increase, but not the nominal value. The price of any new shares issued...
Thursday, February 18, 2010
(111)-DIVIDENDS
Dividends Shareholders are entitled to a share of the profits made by the company. Dividends are appropriations of profit after tax. A company might pay dividends in two stages during the course of their accounting year: In mid year, after the half year financial results are known, the company might pay an interim dividend. At the end of the year, the company might pay a further final dividend.The...
Wednesday, February 17, 2010
(110)-THE CAPITAL OF LIMITED COMPANIES
The Capital of Limited Companies The proprietors’ capital in a limited company consists of share capital. When a company is set up for the first time, it issues shares. These are paid for by investors, who then become shareholders of the company. Shares are denominated in units of 50 pence, 1$, 2$ or whatever seems appropriate. This “face value” of the shares is called their nominal value. A distinction...
Tuesday, February 16, 2010
(109)-THE BOARD OF DIRECTORS IN COMPANIES
The Board of Directors In companies A company can have a large number of shareholders, or only a few. No matter how many there are, they delegate authority for the day to day management of the company to its directors, who are directly responsible to the shareholders for what they do. In some small companies, the directors of the company and its shareholders are the same people. There must also be...
Monday, February 15, 2010
(108)-THE ACCOUNTING RECORDS OF LIMITED COMPANIES
The Accounting Records of Limited Companies There is a legal requirement for companies to keep accounting records which are sufficient to show and explain the company’s transactions. The records should: Disclose the company’s current financial position at any time. Contain:1. Day to day entries of money received and spent.2. A record of the company’s assets and liabilities.3. Where the company deals...
Sunday, February 14, 2010
(107)-LIMITED LIABILITY
Limited Liability Limited liability means that the maximum amount that an owner stands to lose in the event that the company becomes insolvent and cannot pay off its debits is his share of capital in the business. Unlimited liability means that if the business runs up debts that it is unable to pay, the proprietors will become personally liable for the unpaid debts, and would be required, if necessary,...
Saturday, February 13, 2010
(106)-ACCOUNTING FOR LIMITED COMPANIES INTRODUCTIONS
Accounting For Limited Companies Introduction The accounting rules and conventions for recording the business transactions of limited companies and then preparing their final accounts are much the same as for sole trader. For example, companies will have a cash book, sales day book, purchase day book, journal, sales ledger, purchase ledger and nominal ledger. They will also prepare a profit and loss...
Friday, February 12, 2010
(105)-SUMMARY ABOUT PARTNERSHIP ACCOUNTING
Summary about Partnership Accounting Accounting for a partnership is for the most part the same as accounting for a sole trader except in the following respects. The initial capital put into the business by each partner is shown by means of a capital account for each partner. Each partner also has a current account and drawings account. The net profit of the partnership is appropriated by the partners...
Thursday, February 11, 2010
(104)-APPROPRIATION OF NET PROFITS IN PARTNERSHIPS
Appropriation of Net Profits in Partnerships The net profit of a partnership is shared out between them according to the terms of their agreement. This sharing out is shown in a profit and loss appropriation account, which follows on from the profit and loss account itself.The accounting entries are: Profit and loss account with net profit c/d – DebitProfit and loss appropriation account with net...
Wednesday, February 10, 2010
(103)-ACCOUNTING ADJUSTMENTS FOR LOANS BY PARTNERS
Accounting Adjustments for Loans by Partners In addition, it is sometimes the case that an existing or previous partner will make a loan to the partnership in which case he becomes a creditor of the partnership. On the balance sheet, such a loan is not include as partners’ funds, but is shown separately as a long-term liability. This is the case whether or not the loan creditor is also an existing...
Tuesday, February 9, 2010
(102)-CAPITAL AND CURRENT ACCOUNTS IN PARTNERSHIPS
Capital Account and Current Account in Partnership Capital account The balance for the capital account will always be a brought forward credit entry in the partnership accounts, because the capital contributed by proprietors is a liability of the business.When a partnership is formed, each partner puts in some capital to the business. These initial capital contributions are recorded in a series of...
Monday, February 8, 2010
(101)-DIFFERENCE BETWEEN PARTNERSHIP ACCOUNTS AND SOLE TRADER ACCOUNTS
Difference between Partnership Accounts and Sloe Trader Accounts Partnership accounts are identical in many respects to the accounts of sole traders. The assets of a partnership are like the assets of any other business, and are accounted for in the same way. The assets side of a partnership balance sheet is no different from what has been shown in earlier posts. The net profit of a partnership is...
Sunday, February 7, 2010
(100)-ADVANTAGES AND DISADVANTAGES OF PARTNERSHIPS
Advantages and Disadvantages of Partnerships Operating as a partnership entails certain advantages and disadvantages when compared with both sole trader and limited companies. Partnership and sole trader The advantages of operating as a partnership rather than as a sole trader are practical rather than legal. They include the following. Risks are spread across a larger number of people. The trader...
Saturday, February 6, 2010
(99)-INTRODUCTION TO PARTNERSHIP ACCOUNTS
Introduction to Partnership Accounts Partnership is defined as the relationship which exists between persons carrying on a business in common with a view of profit. In other words, a partnership is an arrangement between two or more individuals in which they undertake to share the risks and rewards of a joint business operations. It is usual for a partnership to be established formally by means of...
Friday, February 5, 2010
(98)-SUMMARY ABOUT INCOMPLETE RECORDS
Summary about Incomplete records Incomplete records accounts is preparing accounts in the following situations, A trader does not maintain a ledger and therefore has no continuous double entry record of transactions. Accounting records are destroyed by accident, such as fire. Some essential figure is unknown and must be calculated as a balancing figure. This may occur as a result of stock being damaged...
Thursday, February 4, 2010
(97)-STEPS TO DEALING WITH INCOMPLETE RECORDS
Steps to Dealing with Incomplete Records The nature of the “incompleteness” in the records will vary from problem to problem, but the approach, suitably applied, should be successful in arriving at the final accounts whatever the particular characteristics of the problem might be. The approach is as follows. Step one. If possible, and if it is not already known, establish the opening balance sheet...
Wednesday, February 3, 2010
(96)-TWO COLUMN CASH BOOK FOR SINGLE ENTRY
Preparing Two Column Cash Book for Single Entry Where there appears to be a sizable volume of receipts and payments in cash, then it is also helpful to construct a two column cash book. A two column cash book is a cash book with one column for cash, and one column for the business bank account. A two column cash book is completed as follows in single entry accounting. Step one. Enter the opening cash...
Tuesday, February 2, 2010
(95)-USING CASH BOOK FOR INCOMPLETE RECORDS
Using Cash Book for Incomplete Records The construction of a cash book, largely from bank statements showing receipts and payments of a business during a given period, is often an important feature of incomplete records problems. Information about cash receipts or payments might be needed to establish: The amount of purchases during a period The amount of credit sales during a period Other items of...
Monday, February 1, 2010
(94)-ACCOUNTING FOR STOCK DESTROYED, STOLEN OR LOST
Accounting for Stock Destroyed, Stolen or Lost When unknown quantity goods is lost, whether they are stolen, destroyed in a fire, or lost in any other way such that the quantity lost cannot be counted, then the cost of the goods lost is the difference between: The cost of goods sold Opening stock of the goods plus purchases less closing stock of the goods When stock is stolen, destroyed or otherwise...
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