AC1103
ACCOUNTING 1
Lesson 13 Additional Slides
Learning Objectives
1. Identify the differences in the accounting for soleproprietorship, partnership and companies.
2. Identify the capital structure for soleproprietorship, partnership and companies.
2
Accounting for sole-proprietorship,
partnership and companies.
Accounting for different legal forms of business is the
same except for the owners’ equity of the legal forms
of business.
3
Capital Structure of Sole-proprietorship,
Partnership and Companies
Capital structure consists of equity and debt
financing.
Accounting for debt financing is the same for the
different legal forms of business.
4
Equity or Owner Equity
(Recap from Lesson 1)
Equity is the residual interest in the assets of
the entity after deducting all its liabilities.
Two sources:
Capital contributions from business owners
Profits generated by the business
Other related terminologies
1. Contributions from business owners is known as Capital.
Only companies issue shares and contributions from
shareholders is known as Share Capital.
2. Drawings - any economic resources that is taken from the
businesses (i.e. Sole-proprietorships and Partnerships
only) by the business owners for personal use.
3. Retained Earnings – only companies have retained
earnings. Sole-proprietorships and Partnerships will
distribute all the profits generated to the owners.
6
Owner Equity of
Sole-Proprietorship
Capital
Capital as at beginning of FY
Add: Additional Capital contributed
during the FY
Less: Drawings withdrawn during the FY
Add: Profits for the year
Capital as at end of FY
$
35,000
5,000
(8,800)
5,400
36,600
7
Owners’ Equity of
Partnership
Partnership has two types of equity accounts:
1. Capital account reflects the capital contributed
by the partners.
2. Current account reflects the share of profits less
the drawings withdrawn by the partners.
8
Owners’ Equity of
Partnership
Partners’ Capital
Partner A
Partner B
60%1 share
40%1 share
Capital
Account
Current
Account
Capital
Account
Current
Account
Total
$
$
$
$
$
Balance as at beginning of FY
60,000
Add: Additional Capital
contributed during the FY
10,000
15,000
25,000
10,000
5,000
110,000
15,000
Less: Drawings withdrawn
during the FY
(8,000)
(3,000)
(11,000)
Add: Profits for the year
18,000
12,000
30,000
19,000
144,000
Balance as at end of FY
1
70,000
25,000
30,000
Partners’ share of profits may not equate to their investment contributions.
9
Owners’ Equity of
Companies
Shareholders’ Equity
Balance as per beginning of FY
Add: Share issuances during
the FY
Share
Capital
Retained
Earnings
Total
$
$
$
100,000
12,000
Add: Profit for the year
Less: Treasury Shares
(8,000)
104,000
165,000
12,000
25,000
Less: Dividends
Balance as per end of FY
65,000
25,000
(8,000)
(10,000)
(10,000)
80,000
184,000
10