ACCOUNTINGFor sole and Partnership firm

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.

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.

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

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of cash or any asset withdrawn by the owner of the business for his personal or domestic use.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.

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.

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

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.

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.

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.

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 SalaryTo CommissionTo Interest on CapitalTo Reserve A/cTo 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

Profit and Loss Appropriation Account

Particulars Total

Add

Less

Net profit Interest on drawings

Interest on capitalCommission Salary

XXXXXXXXX

XXXXXXXXXXXX

XXXXXX

For Partnership Firm Partners' Current Account

Particulars Partner A

Partner B

Particulars Partner A

Partner B

Balance b/dDrawingsInterest on drawingsBalance c/d

Balance b/d

XXXXXXXXXXXXXXXXXX1

XXX3

XXXXXXXXXXXXXXXXXX2

XXX4

Balance b/dInterest on CapitalSalaryCommissionShare of ProfitsBalance c/d

Balance b/d

XXXXXXXXXXXXXXXXXXXXX3XXX

XXX1

XXXXXXXXXXXXXXXXXXXXX4XXX

XXX2

Profit and Loss Appropriation Account

Particulars Total

Add

Less

Net profit Interest on drawingsPartner A (XXX)Partner B (XXX)

Interest on capitalPartner A (XXX)Partner B (XXX)

XXXXXX

XXXXXX

XXX

XXXXXX

XXXXXX

CONT…

Profit and Loss Appropriation Account (Cont…)

Particulars Total

Less

Less

Commission Partner A (XXX)Partner B (XXX)

Salary Partner A (XXX)Partner B (XXX)

XXXXXX

XXXXXX

XXX

XXXXXX

XXXXXXX

CONT…

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