Partmership

Balance c/d PLCA Bank/payments balance b/d Discounts received Purchases Purchases returns sales ledger contra Balance c/f In the accounts of the lessee: • Operating lease – the hire payments are shown in the profit and loss account as revenue expenditure. Operating lease – a short-term lease under which the asset is likely to be hired to several lessees. Operating leases are usually for short-term rentals of equipment. The lease company retains the ownership and all the risks and rewards which go with it. The payments are charged to the profit and loss account. There is no record of the asset in the balance sheet because the equipment will never belong to you. • Finance lease – the asset is capitalized and the accounts show Finance lease – a long-term lease under which the asset is likely to be rented to only one lessee. A finance lease is a longer term commitment. The value of the asset appears in your balance sheet, less any accumulated depreciation. The amount outstanding to the lease company is shown in liabilities. In the profit and loss account the interest charge and the depreciation charge are shown. –in the balance sheet, the cost of the fixed asset (excluding interest), less provision for depreciation. –in the profit and loss account, interest due for the year to the lessor, and depreciation on the asset for the year. –in the balance sheet, a liability for future leasing payments (excluding and long-term liabilities. Fixed asset register: • Date of purchase • Description • Method of finance • Rate of depreciation • Method of depreciation • Depreciation charges for each period • Accumulated depreciation • Net book value • Disposal date • Disposal proceeds • Expected lifetime • Expected residual value Reasons why a fixed asset register should be kept (three reasons): • it shows the individual record of each fixed asset • it enables a business to keep control of fixed assets • it enables depreciation to be calculated for each asset • it shows the net book value of each asset • it shows the funding method of each asset advantages of keeping the additional items of information you named in • It enables the verification of the value of the fixed assets on the main ledger and balance sheet. • Showing the net book value of each asset allows accurate entries to the main ledger at the time of disposal. • It assists in the calculation of depreciation. • It shows whether there is any finance on each of the individual assets. Reconciliation Thank you for asking me about the reconciliation between the sales ledger and the sales ledger control account. The sales ledger contains the individual accounts of customers. Each customer record shows the individual transactions between the business and the customer. It is not part of the double entry system. The individual accounts are memoranda accounts. The sales ledger control account is a summary of the activity in the sales ledger, using the information from the books of original entry. It is part of the double entry accounting system. The reason for doing the reconciliation is to ensure that the total of the individual accounts equals the balance in the control account. If they do not balance, it is known that errors have taken place. Therefore the reconciliation finds errors that may have taken place either in the sales ledger or in the sales ledger control account. Depreciation Fixed assets have a life of more than one year. Their cost should be spread over their useful life rather than charging the profit and loss account with the full amount paid at the time of purchase. Depreciation is the means by which the cost of the fixed asset is spread over the useful economic life of the asset. The accruals concept says that transactions should be reflected in the accounting period to which they relate, not the period in which the cash is received or paid. Therefore depreciation is an application of the accruals concept because the cost of the asset is charged to the profit and loss account over the useful life of the asset rather than when it is paid for. It would not be correct to charge the full cost of the asset to the profit and loss account at the time of purchase. BAD debts When a bad debt is written off there is reasonable certainty that a specific debtor is not going to pay. The profit and loss account is charged with the bad debt and the amount is taken off the sales ledger control account. Provision for doubtful debts A provision is created where you are uncertain about the debt. Creating a provision does not remove the debt from debtors but does reduce the value of debtors on the Balance Sheet A provision for doubtful debts is made when there is some doubt that the total value of debtors will be collected. The change in the provision is charged to the profit and loss account through the adjustment account. The total provision is deducted from the trade debtors in the balance sheet. Having a provision for doubtful debts matches the expense with the period in which the revenue was earned. The provision is often based on a percentage of trade debtors or a percentage of sales. The provision can be adjusted each year and the debts are not actually written off. Accruals Concept The accruals or matching concept states that costs and benefits must be matched in the period to which they relate. Some expenses however are paid in ADVANCE, some in ARREARS When an expense is paid in ARREARS it is paid in a later accounting period than the one it relates to. To ensure the expense is in the correct accounting period we need to add it to the expense. Prepayments When an expense is paid in ADVANCE, a portion of this payment may relate to future accounting periods. The portion relating to the following year needs to be deducted from the expense Partnership accounts With regard to your recent enquiry, I am pleased to offer the following advice. When there is more than one owner of a business, each owner has a capital account and a current account. Therefore, if there are two partners, the accounts of the business will show two capital accounts and two current accounts. The distinction between the two types of account is: • capital accounts are held to record the major capital transactions of each partner. For instance, when a partner joins the business and introduces capital; • current accounts are used to record the regular transactions that partners have, such