Balbharati solutions for Book-keeping and Accountancy 12th Standard Hsc Maharashtra State Board.
Chapter 1 - Introduction to Partnership and Partnership Final Accounts [Latest edition]
Complete the Sentence.
Partners share profit & losses in equal ratio in the absence of partnership deed.
Registration of Partnership is optional in India.
Partnership business must be lawful.
Liabilities of Partners in Partnership firm is unlimited.
The balance of Drawings Account of a partner is transferred to his current account under the Fixed Capital Method.
The interest on capital of a partner is debited to Profit and Loss account.
Partners are joint & several liable for the debts of the firm.
Partnership Deed is an Article of Partnership.
The withdrawal by partner for personal use from the firm is debited to his account.
Commission payable to partner is liability/ outstanding expense to the firm.
When partners adopt Fixed Capital Method then they have to operate partners current Account.
If partners Current Account shows credit balance it is shown to the liability side of Balance sheet.
The expenses paid for trading purpose are known as trade expenses.
Cash receipts which are recurring in nature are called as revenue Receipts.
Return outward are deducted from purchase.
Expenses which are paid before due date are called as Prepaid Expenses.
Assets which are held in the business for a long period are called fixed assets.
Trading Account is prepared on the basis of direct expenses.
When commission is allowed to any partner, it is expenditure of the business.
When goods are distributed as free samples, it is treated as advertisement expense of the business.
Difficult Words & Meanings
- Partnership Deed: A formal written agreement between partners that outlines the terms, conditions, rights, and responsibilities of each partner in a business.
- Optional: Not compulsory; something that can be chosen or not.
- Lawful: Permitted by law; legal.
- Liabilities: The debts or financial obligations of a company or individual.
- Unlimited Liability: A situation where the owners (partners) of a business are personally responsible for all its debts, meaning their personal assets can be used to pay off business debts if the business cannot.
- Drawings Account: An account used to record money or goods taken out of the business by a partner for personal use.
- Fixed Capital Method: A method of maintaining partners' capital accounts where the initial capital contributions remain unchanged unless additional capital is introduced or withdrawn permanently. Day-to-day transactions like drawings, interest on capital, salary, etc., are recorded in a separate 'Current Account'.
- Debited: An accounting entry that results in either an increase in assets or expenses, or a decrease in liability or equity. For an expense account like 'Interest on Capital' or a 'Drawings Account', debiting means increasing its balance.
- Joint & Several Liability: A legal term meaning that each partner is individually responsible for all the debts of the partnership, and also all partners are collectively responsible. Creditors can sue any one partner or all partners together for the full amount owed.
- Article of Partnership: Another term for Partnership Deed; the document containing the rules and regulations governing the partnership.
- Commission: A fee paid to a partner for services rendered, often based on a percentage of sales or profits.
- Outstanding Expense: An expense that has been incurred (used or benefited from) but not yet paid. It's a liability for the firm.
- Current Account (Partners'): An account maintained under the Fixed Capital Method to record all transactions between the partner and the firm other than initial capital, like interest on capital, salary, drawings, share of profit/loss.
- Credit Balance: In a liability account (like a Partner's Current Account showing money owed by the firm to the partner), a credit balance indicates the amount owed.
- Balance Sheet: A financial statement that reports a company's assets, liabilities, and equity at a specific point in time.
- Trading Purpose: Activities directly related to the buying and selling of goods.
- Recurring: Occurring repeatedly or regularly.
- Revenue Receipts: Income received by a business from its normal day-to-day operations, which is regular and recurring in nature (e.g., sales, fees).
- Return Outward: Goods returned by the business to its suppliers; also known as purchase returns.
- Prepaid Expenses: Expenses paid in advance for benefits that will be received in a future accounting period. They are considered assets until the benefit is used up.
- Fixed Assets: Long-term tangible property or equipment that a firm owns and uses in its operations to generate income (e.g., buildings, machinery).
- Direct Expenses: Expenses that are directly attributable to the production or purchase of goods (e.g., wages for factory workers, freight inwards).
- Expenditure: The action of spending funds; an amount of money spent.
- Advertisement Expense: Costs incurred by a business to promote its products or services.