Trading Account : We have to record all direct expenses to the debit side of this account and all direct incomes to the credit side of this account. The credit balance of this account shows gross profit which is to be transferred to the credit side of the profit and loss account. The debit balance shows gross loss which is to be transferred to the debit side of profit and loss account.
Profit and Loss Account : All indirect expenses are to be recorded to the debit side whereas all indirect incomes are to be recorded to the credit side of this account. The credit balance of this account shows net profit which is transferred to profit and loss appropriation credit side. The debit balance of this account shows net loss which is transferred to profit and loss appropriation debit side.
Partners Capital Account : Partners Capital account is credited with the opening balance. All incomes of the partners are credited to this account For eg. Salary, Remuneration to partners, Interest on Capitals. All expenses of the partners such as Drawings, Interest on drawings are debited to this account.
Partners Current Account : If Partners current account is given, then all the above adjustments are passed through Partners Current account instead of the partners capital account. In this case partners capital account is not opened and it directly appears to the Balance Sheet.
Balance Sheet : Balance Sheet is a statement showing financial position of the firm on a particular day. All liabilities are recorded to its left hand side while all assets on its right hand side.
Write the word/term/phrase which can be substitute the following statement :
1. An account to which all adjustments relating to the partners are made, when the capital is fixed.
Ans : Current Account.
2. Two or more persons coming together to do the lawful business to earn profit.
Ans : Partnersship.
3. The partner who takes active part in the management of the firm.
Ans : Active Partner.
4. An agreement among the partners.
Ans : Partnership Deed.
5. An account in which all items of expenses and income relating to the partners are recorded.
Ans : Profit and Loss Appropriation Account.
6. The proportion in which the partners distribute the firm’s profits.
Ans : Profit sharing ratio.
7. A partner who contributes the capital but does not take active part in the conduct of the business.
Ans : Sleeping Partner.
8. The statement of affairs of the firm on a particular date.
Ans : Balance Sheet.
9. Debit balance in trading account.
Ans : Gross Loss.
10. Credit balance in Profit & Loss A/c.
Ans : Net Profit.
11. Such method in which both the Capital account and the Current Account are maintained for each partner.
Ans : Fixed Capital Method.
12. List of Debit and Credit Balance on the ledger accounts.
Ans : Trial Balance.
13. The part of debtors which are definitely not recoverable.
Ans : Bad Debts.
14. Expenses due but not paid.
Ans : Outstanding Expenses.
15. Expenses paid in advance of the period which has not expired.
Ans : Prepaid Expenses.
In a trial balance there are two sides, one is debit and other is credit.
On the debit side of the trial balance we record the direct expenses indirect expenses losses and assets.
On the credit side of the trial balance we record the direct incomes indirect incomes gains and liabilities.
While recording in the final accounts from the trial balance
All the direct expenses will appear to the debit side of trading account.
All the indirect expenses and losses will appear to the debit side of profit and loss account.
All the assets will appear on the right hand side of the balance sheet.
All the direct incomes will appear to the credit side of trading account.
All the indirect incomes and gains will appear on the credit side of profit and loss account.
All the liabilities will appear on the left hand side off the balance sheet.
Adjustments
When there is any outstanding expense.
Add in the respective expense.
Record in the liability side.
When there is any outstanding income.
Add in the respective income.
Record in the asset side.
When there is any decrease in asset.
Less from respective asset.
Record in the profit and loss account debit side.
When there is any increase in asset.
Add in the respective asset.
Record in the profit and loss account credit side.
When there is any decrease in liability.
Less from respective liability.
Record in the profit and loss account credit side.
When there is any increase in liability.
Add in the respective liability.
Record in the profit and loss account debit side.
When there is any prepaid expense.
Less from the respective expense.
Record in the asset side of the balance sheet.
When there is any pre-received income.
List from the respective income.
Record in the liability side off the balance sheet.
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