The necessity of partnership arises to remove the limitations of a sole trader like shortage of funds, unlimited personal liability, uncertainty about existence, limited skill etc. Partnership firm is formed in order to meet the growing needs of more capital, more effective supervision and control, greater specialization and division of work and spreading of risks. Partnership is the association between two or more persons who agree to carry on the business Accounting degrees and to share profits and losses arising from it and act both as an agent and principal of the firm .
In the beginning all partners have mutual love and affection and they are ready to work in a team. Inspite of this, it is desirable that they must have either verbal or written agreement in order to avoid the future dispute among the partners. Usually agreement in black and white is preferred so that it can be referred as and when need arises . The document which contains the terms and conditions regarding the conduct of partnership business is called partnership deed . Accounting degrees of partnership firm a. Capital accounts of partners i. Fixed capital ii. Fluctuating capital b. Loan account c. Interest on capital d. Drawings e. Interest on drawings f. Partners salary or commission g. Usual adjustments in partnership accounts Admission of a partner The following are the main points which usually require attention at the time of admission of a partner: a. Calculation of new profit sharing ratio. b. Revaluation of assets and liabilities. c. Treatment of goodwill. d. Adjustment of undistributed profits and losses. e. Adjustment of capitals in order to bring these in proportion to profit sharing ratio. Retirement and Death of a partner The only difference between admission and retirement of a partner is that in case of the former, the new partner joins the firm whereas in case of retirement, he leaves the firm because of certain reasons as old age, ill health.
The main points which require attention in case of retirement of a partner are: a. Treatment of goodwill b. Revaluation of assets and liabilities c. Calculation of gaining ratio d. Treatment of undistributed profits or losses e. Share of profit up to the date of retirement. f. Share in life policy. g. Calculation of total amount due to a retiring partner . h. Adjustment of capitals after retirement in order to be proportionate to the new profit sharing ratio. i. Settlement of total amount due to the retiring partner . j. Calculation of deceased partners share of profit. k. Treatment of life policy or policies. Dissolution of a firm Dissolution means dissolution of partnership of all partners of the firm along with winding up of the business of the entire firm . The business of the firm and books of accounts are closed . It means dissolution of partnership also. It may be both voluntary and compulsory. A firm can be dissolved by courts orders.
BRANCH ACCOUNTING
The main object of keeping branch Accounting degrees is dependent on the nature of the business and specific need of a particular branch. The objectives of keeping the branch accounts acceptable to all businesses are: a. To know the profit or loss of each branch separately . b. To ascertain the financial position of each branch on a particular date . c. To know the cash and goods requirements of the various branches . d. To evaluate the progress and performance of each branch . e. To calculate commission for payment to the managers, if based on profits of branch. f. To know the profitability of each branch and type of business for expansion of the business . g. To give concrete suggestions for the improvement in the working of the various branches. h. To meet the requirements of specific enactments as all branches of a company must keep the accounts for audit purposes. Types of branches From accounting point of view, the following are the main types of branches: a. Branch not keeping full system of accounting . b. Branch keeping full system of accounting and c . Foreign branches.
DEPARTMENTAL ACCOUNTING
When a business sells different types of goods and carries on several activities under one roof, it is generally split up into a number of departments. This is generally done to have smooth and efficient running of a business . A department is generally a physical part of the rest of the business . It is not separated geographically from the other departments, though treated a separate profit centre. When a business is divided into several departments, internal information about operating results of each department is required. This enables the management to take decisions relating to pricing, closure, after taking into consideration the different rates of growth, profitability and degree of risk of different departments. When all the divisions of a business are located under one roof and it is desired to ascertain the profit or loss of each department or class of goods separately, then departmental Accounting degrees are prepared. The main objects of preparing such accounts are : a. To have comparison of the results of a particular department with previous year and also with the other departments of the same concern . b. To help the proprietor in formulating policy to expand the business on proper lines so as to optimize to profits of the concern. c. To allow departmental managers commission on the basis of the profits of their departments, and d . To generate information which may be helpful for planning, control, evaluation of performance of each department and for taking various managerial decisions. Advantages 1. The trading results of each department may help to evaluate the performance of each department .
The sales of that department which gives maximum profit may be pushed up by special efforts. 2. The profitability of each department may help the management for taking decision whether to drop a department or add a new one . 3. The growth potentials of a department can be evaluated by having comparison with the other departments. 4. The users of accounting information like shareholders, investors, creditors can be provided more detailed information. 5. The overall profits of the organization can be increased by having friendly rivalries among different departments. 6. The departmental managers and staff can be justification of proper use of capital invested in each department. 7. It helps the management to determine the justification of proper use of capital invested in each department . 8. It helps to have comparison of various expenses of each department with the previous period or with other departments of the same concern. 9. It helps to know the efficiency of each department by calculating stock turnover ratio of each department to reveal the fast or slow movement or various items of stock. 10. The information provided by departmental accounts may be helpful to the management for future intelligent planning and control.
COMPANY ACCOUNTS
Two major limitations of sole-proprietorship concerns and partnership firms are: a. inadequacy of funds, and b. unlimited liability To overcome these limitations, one of the most convenient forms of organization that grew with expansion of business requiring huge funds is the joint stock company form of organization. The main characteristics of a company are : a. It is a distinct legal person existing independent of its members . b. Liability of the members is limited to the extent of the face value of shares held c. It has a perpetual succession. d. The shares of a company are freely transferable except in case of a private limited company . e. A company being a legal person is capable of owing, enjoying and disposing of the property in its own name. f. A company, being a separate body, can sue and be sued in its own name . g. Though, a company is an artificial person yet it acts through human beings who are called directors of the company. There is a divorce between ownership and management. h. It is a voluntary association of persons usually for profit .
In the beginning all partners have mutual love and affection and they are ready to work in a team. Inspite of this, it is desirable that they must have either verbal or written agreement in order to avoid the future dispute among the partners. Usually agreement in black and white is preferred so that it can be referred as and when need arises . The document which contains the terms and conditions regarding the conduct of partnership business is called partnership deed . Accounting degrees of partnership firm a. Capital accounts of partners i. Fixed capital ii. Fluctuating capital b. Loan account c. Interest on capital d. Drawings e. Interest on drawings f. Partners salary or commission g. Usual adjustments in partnership accounts Admission of a partner The following are the main points which usually require attention at the time of admission of a partner: a. Calculation of new profit sharing ratio. b. Revaluation of assets and liabilities. c. Treatment of goodwill. d. Adjustment of undistributed profits and losses. e. Adjustment of capitals in order to bring these in proportion to profit sharing ratio. Retirement and Death of a partner The only difference between admission and retirement of a partner is that in case of the former, the new partner joins the firm whereas in case of retirement, he leaves the firm because of certain reasons as old age, ill health.
The main points which require attention in case of retirement of a partner are: a. Treatment of goodwill b. Revaluation of assets and liabilities c. Calculation of gaining ratio d. Treatment of undistributed profits or losses e. Share of profit up to the date of retirement. f. Share in life policy. g. Calculation of total amount due to a retiring partner . h. Adjustment of capitals after retirement in order to be proportionate to the new profit sharing ratio. i. Settlement of total amount due to the retiring partner . j. Calculation of deceased partners share of profit. k. Treatment of life policy or policies. Dissolution of a firm Dissolution means dissolution of partnership of all partners of the firm along with winding up of the business of the entire firm . The business of the firm and books of accounts are closed . It means dissolution of partnership also. It may be both voluntary and compulsory. A firm can be dissolved by courts orders.
BRANCH ACCOUNTING
The main object of keeping branch Accounting degrees is dependent on the nature of the business and specific need of a particular branch. The objectives of keeping the branch accounts acceptable to all businesses are: a. To know the profit or loss of each branch separately . b. To ascertain the financial position of each branch on a particular date . c. To know the cash and goods requirements of the various branches . d. To evaluate the progress and performance of each branch . e. To calculate commission for payment to the managers, if based on profits of branch. f. To know the profitability of each branch and type of business for expansion of the business . g. To give concrete suggestions for the improvement in the working of the various branches. h. To meet the requirements of specific enactments as all branches of a company must keep the accounts for audit purposes. Types of branches From accounting point of view, the following are the main types of branches: a. Branch not keeping full system of accounting . b. Branch keeping full system of accounting and c . Foreign branches.
DEPARTMENTAL ACCOUNTING
When a business sells different types of goods and carries on several activities under one roof, it is generally split up into a number of departments. This is generally done to have smooth and efficient running of a business . A department is generally a physical part of the rest of the business . It is not separated geographically from the other departments, though treated a separate profit centre. When a business is divided into several departments, internal information about operating results of each department is required. This enables the management to take decisions relating to pricing, closure, after taking into consideration the different rates of growth, profitability and degree of risk of different departments. When all the divisions of a business are located under one roof and it is desired to ascertain the profit or loss of each department or class of goods separately, then departmental Accounting degrees are prepared. The main objects of preparing such accounts are : a. To have comparison of the results of a particular department with previous year and also with the other departments of the same concern . b. To help the proprietor in formulating policy to expand the business on proper lines so as to optimize to profits of the concern. c. To allow departmental managers commission on the basis of the profits of their departments, and d . To generate information which may be helpful for planning, control, evaluation of performance of each department and for taking various managerial decisions. Advantages 1. The trading results of each department may help to evaluate the performance of each department .
The sales of that department which gives maximum profit may be pushed up by special efforts. 2. The profitability of each department may help the management for taking decision whether to drop a department or add a new one . 3. The growth potentials of a department can be evaluated by having comparison with the other departments. 4. The users of accounting information like shareholders, investors, creditors can be provided more detailed information. 5. The overall profits of the organization can be increased by having friendly rivalries among different departments. 6. The departmental managers and staff can be justification of proper use of capital invested in each department. 7. It helps the management to determine the justification of proper use of capital invested in each department . 8. It helps to have comparison of various expenses of each department with the previous period or with other departments of the same concern. 9. It helps to know the efficiency of each department by calculating stock turnover ratio of each department to reveal the fast or slow movement or various items of stock. 10. The information provided by departmental accounts may be helpful to the management for future intelligent planning and control.
COMPANY ACCOUNTS
Two major limitations of sole-proprietorship concerns and partnership firms are: a. inadequacy of funds, and b. unlimited liability To overcome these limitations, one of the most convenient forms of organization that grew with expansion of business requiring huge funds is the joint stock company form of organization. The main characteristics of a company are : a. It is a distinct legal person existing independent of its members . b. Liability of the members is limited to the extent of the face value of shares held c. It has a perpetual succession. d. The shares of a company are freely transferable except in case of a private limited company . e. A company being a legal person is capable of owing, enjoying and disposing of the property in its own name. f. A company, being a separate body, can sue and be sued in its own name . g. Though, a company is an artificial person yet it acts through human beings who are called directors of the company. There is a divorce between ownership and management. h. It is a voluntary association of persons usually for profit .
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