MGT101 - Financial Accounting- Lecture 31
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The document provides an overview of different business entities in financial accounting, including commercial organizations like sole proprietorships, partnerships, and limited companies, as well as non-commercial organizations such as cooperatives and NGOs. It outlines the operational structure, types of accounts used, and liabilities of these entities, highlighting how profits are distributed in commercial entities versus how they are utilized in non-commercial entities. Additionally, it details the specific accounting practices and balance sheets for sole proprietors, partnerships, and limited companies.
MGT101 - Financial Accounting- Lecture 31
- 1. Financial Accounting 1 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.
- 2. Financial Accounting 2 Lecture – 31 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.
- 3. Financial Accounting 3 Lecture – 31 Sole Proprietorship • Sole Proprietorship is a business owned and run by an Individual called Proprietor / Sole Proprietor. • It is the simplest form of business.
- 4. Financial Accounting 4 Lecture – 31 Partnership • Partnership is a business owned and run by more than one persons called Partners. • There can be a maximum of 20 partners.
- 5. Financial Accounting 5 Lecture – 31 Partnership • Partners in a partnership business are Jointly and Severally liable for repayment of partnership’s liabilities. • The liability of the partners is Unlimited.
- 6. Financial Accounting 6 Lecture – 31 Limited Companies • The liability of the owners is limited to the extent of funds invested by them in the company.
- 7. Financial Accounting 7 Lecture – 31 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.
- 8. Financial Accounting 8 Lecture – 31 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.
- 9. Financial Accounting 9 Lecture – 31 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
- 10. Financial Accounting 10 Lecture – 31 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
- 11. Financial Accounting 11 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.
- 12. Financial Accounting 12 Lecture – 31 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.
- 13. Financial Accounting 13 Lecture – 31 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.
- 14. Financial Accounting 14 Lecture – 31 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
- 15. Financial Accounting 15 Lecture – 31 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
- 16. Financial Accounting 16 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.
- 17. Financial Accounting 17 Lecture – 31 Limited Companies – Number of Shareholders • Public Limited Company Minimum Seven persons can form a public limited company.
- 18. Financial Accounting 18 Lecture – 31 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.
- 19. Financial Accounting 19 Lecture – 31 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.
- 20. Financial Accounting 20 Lecture – 31 Distribution of Profits • The profit of company is distributed in the form of Dividend.