BSEH SS Accountancy cheat sheet

Partnership is an association of two or more persons who agree to share profits of a business carried on by all or any of them acting for all; the partnership deed governs profit-sharing, capital, interest, and salary terms.

In the absence of a deed, the Indian Partnership Act 1932 defaults apply: profits and losses shared equally, no interest on capital or drawings, 6% p.a. interest on advances/loans by a partner, and no partner salary.

Profit and Loss Appropriation Account is debited with interest on capital, partner salary/commission, and transfer to reserve; credited with interest on drawings and net profit; the balance is distributed in the profit-sharing ratio.

Interest on drawings is calculated on time basis (monthly/quarterly drawings) or product method (amount x months); average period is 6 months for equal monthly drawings at start, 6.5 months at start, 5.5 months at end.

When capitals are fixed, separate Current Accounts record salary, interest on capital, share of profit (credit) and drawings, interest on drawings, share of loss (debit).

When capitals are fluctuating, all such items are recorded directly in the Capital Accounts, and the closing balance is the partner's capital.

Interest on a partner's loan is a charge against profits, allowed even if there is a loss, at 6% p.a. unless agreed otherwise.

Goodwill raised at admission of a partner is credited to old partners in old ratio; the incoming partner brings his share of goodwill which is compensated to sacrificing partners in their sacrifice ratio.

Guarantee of minimum profit: if a partner's share falls short, the deficiency is borne by the guaranteeing partner(s) in the agreed ratio, or by the firm, debited to their capital accounts.

At admission, the new profit-sharing ratio = old share x (1 - new partner's share); sacrifice ratio = old share - new share, used to distribute goodwill brought in by the new partner.

Revaluation Account is prepared at reconstitution to record changes in asset and liability values; profit on revaluation is credited to old partners in old ratio, loss debited in old ratio.

Unrecorded assets and liabilities are brought into books through the Revaluation Account; accumulated reserves and profits are distributed among old partners in old ratio.

At retirement or death, gaining ratio = new share - old share of continuing partners; the retiring/deceased partner's share of goodwill is compensated by gaining partners.

Amount due to a retiring partner is settled per the deed; in absence of agreement, Sections 32-37 of the Partnership Act apply and the outgoing partner's share is paid with interest at 6% p.a. on the unsettled amount.

On death, the deceased partner's share of profit till death is estimated on the basis of last year's profit or average profit for the elapsed period, credited to his Capital Account.

Revaluation of assets and liabilities, distribution of reserves, and goodwill adjustment are done at retirement/death exactly as at admission, but sharing is among all partners before reconstitution.

If a partner's capital account shows a debit balance at retirement/death, it is borne by the remaining partners in their gaining ratio unless otherwise agreed.

Executor's Account is opened for a deceased partner and settled with interest; the amount may be transferred to his loan account if not paid immediately.

Dissolution of partnership vs dissolution of firm: on dissolution of firm, the firm's economic activity ends and assets are realised and liabilities paid; on dissolution of partnership, the firm continues with changed relations.

Order of settlement under Section 48 of the Partnership Act: first pay third-party liabilities, then partners' loans, then partners' capitals; any surplus is shared in profit-sharing ratio.

Realisation Account is debited with all assets at book value (except cash/bank) and credited with liabilities and provisions; sale proceeds of assets and liabilities paid are recorded in it.

Loss on realisation is borne by partners in profit-sharing ratio; a partner's loan is paid before capital, and a partner's capital deficiency is borne by solvent partners in their capital ratio (Garner vs Murray).

Insolvency of a partner: the deficiency in his capital account is a loss shared by other partners in profit-sharing ratio; if all partners become insolvent, the loss is borne by the firm.

Unrecorded assets realised are credited to Realisation Account; unrecorded liabilities paid are debited to Realisation Account.

A partner taking over an asset at an agreed value is recorded by crediting Realisation Account and debiting the partner's Capital Account.

Dissolution expenses paid by the firm are debited to Realisation Account; expenses borne by a partner personally are debited to his Capital Account.

Cash/Bank Account is prepared separately to record opening balance, realisation receipts, payments of liabilities and expenses, and final settlement to partners.

Share capital is shown in the balance sheet as Authorised, Issued, Subscribed and Called-up and Paid-up capital; calls-in-arrears is deducted and calls-in-advance added to paid-up capital.

Issue of shares at par or premium: premium is credited to Securities Premium Account and can be used only for specified purposes such as issue of bonus shares, buyback, or writing off preliminary expenses.

Shares issued for consideration other than cash are recorded at the agreed value; the amount is credited to Share Capital and any excess to Securities Premium.

Pro-rata allotment: excess application money is adjusted against allotment and calls; any surplus is refunded. Calls-in-advance carries interest at 12% p.a. unless the articles provide otherwise.

Forfeiture of shares: Share Capital is debited with the called-up amount (or paid-up amount if partly paid), Calls-in-Arrears credited, and the balance credited to Share Forfeiture Account.

Reissue of forfeited shares: any discount on reissue is debited to Share Forfeiture Account; the balance in Share Forfeiture Account is transferred to Capital Reserve.

Calls-in-Arrears is shown as a deduction from Subscribed but not fully paid-up capital; it is not an asset.

Bonus shares are issued out of free reserves, securities premium, or capital redemption reserve; they are fully paid and do not increase total shareholders' funds.

Under Section 43 of the Companies Act 2013, preference shares carry preferential dividend and repayment; irredeemable preference shares cannot be issued except as permitted.

Debentures are issued at par, premium, or discount; discount on issue is written off against securities premium or statement of profit and loss.

Debenture interest is a charge against profit and is payable whether or not the company earns profit; it is taxable in the hands of the holder.

Debentures issued as collateral security are not recorded in the books (only a note) until the loan is defaulted, when they are recorded at face value.

Redemption by lump sum: amount is transferred to Debenture Redemption Reserve (DRR) as required by the Companies Act; on redemption, Debentures are debited and Debentureholders credited.

Redemption by instalments: amount of instalment is debited to Debentures and credited to Debentureholders; interest is calculated on the outstanding balance.

Redemption by conversion: debentures are converted into shares or new debentures; no cash outflow, and the conversion is recorded at the agreed terms.

Redemption by purchase in open market: own debentures purchased are cancelled; profit or loss on cancellation is transferred to Capital Reserve or Statement of Profit and Loss.

DRR must be created out of profits before redemption; for listed companies, investment in specified securities equal to 15% of debentures maturing in the year is required.

Loss on issue of debentures (discount plus premium on redemption) is written off over the life of debentures or charged to Securities Premium/Statement of Profit and Loss.

Financial statements of a company comprise the Balance Sheet, Statement of Profit and Loss, Cash Flow Statement, and Notes; they are prepared as per Schedule III of the Companies Act 2013.

Balance Sheet is presented in vertical form: Equity and Liabilities (shareholders' funds, non-current liabilities, current liabilities) and Assets (non-current assets, current assets).

Statement of Profit and Loss is prepared in the prescribed format: revenue from operations, other income, expenses, profit before tax, tax, and profit after tax.

Current liabilities include short-term borrowings, trade payables, other current liabilities, short-term provisions; current assets include inventories, trade receivables, cash, and short-term loans.

Shareholders' funds = share capital + reserves and surplus + money received against share warrants; it excludes outside liabilities.

Non-current assets include property, plant and equipment, intangible assets, non-current investments, long-term loans, and deferred tax assets.

Contingent liabilities and commitments are disclosed by way of notes and are not recognised in the balance sheet unless probable and measurable.

Depreciation, amortisation, and impairment are non-cash expenses that reduce profit but do not affect cash flow from operations.

Tax expense includes current tax and deferred tax; deferred tax arises from timing differences between accounting and taxable income.

Current Ratio = Current Assets / Current Liabilities; ideal is 2:1; a very high ratio may indicate idle current assets or poor inventory management.

Quick Ratio = (Current Assets - Inventory - Prepaid Expenses) / Current Liabilities; ideal is 1:1; it measures immediate liquidity.

Debt-Equity Ratio = Long-term Debt / Shareholders' Funds; a high ratio indicates greater financial risk and lower borrowing capacity.

Proprietary Ratio = Shareholders' Funds / Total Assets; it shows the proportion of assets financed by owners.

Inventory Turnover = Cost of Revenue from Operations / Average Inventory; higher turnover indicates efficient inventory management.

Trade Receivables Turnover = Revenue from Operations / Average Trade Receivables; average collection period = 365 / turnover ratio.

Gross Profit Ratio = Gross Profit / Revenue from Operations x 100; Net Profit Ratio = Net Profit / Revenue from Operations x 100; Operating Ratio = Operating Cost / Revenue from Operations x 100.

Return on Investment = Net Profit before Interest and Tax / Capital Employed x 100; Earnings per Share = Profit available to equity shareholders / Number of equity shares.

Ratios are comparable only when accounting policies, period, and classification are consistent; window dressing and inflation distort ratio analysis.

Cash Flow Statement is prepared under AS-3 (Revised) and classifies cash flows into Operating, Investing, and Financing activities.

Operating activities include cash from revenue, payments to suppliers and employees, income tax paid; indirect method starts with net profit and adjusts non-cash and working capital items.

Investing activities include purchase and sale of fixed assets, investments, and interest/dividend received; financing activities include issue of shares/debentures, borrowings, and dividend/interest paid.

Non-cash items added back to net profit: depreciation, amortisation, loss on sale of assets, provision for doubtful debts, and deferred tax; gains on sale are deducted.

Increase in current assets is deducted and decrease added; increase in current liabilities is added and decrease deducted, while computing cash from operations.

Interest paid on borrowings is classified as financing activity for a non-financing company; dividend paid is financing; dividend received is investing.

Cash and cash equivalents include cash in hand, bank balances, and short-term highly liquid investments with original maturity of three months or less.

Only actual cash flows are recorded; transactions not involving cash (e.g., issue of shares for assets) are excluded and disclosed separately if material.

Reconciliation of opening and closing cash balances is presented to verify the net increase or decrease in cash and cash equivalents.

Project work carries 20 marks: project file (12), viva voce (4), and written report/presentation (4), as per CBSE Accountancy guidelines.

A project must state objectives, methodology, data collected, analysis using accounting tools (ratios, cash flow, comparative statements), findings, and conclusion.

Acceptable project topics include a study of financial statements of a company, ratio analysis of two firms, cash flow analysis, and a sole trader's or partnership's accounts.

Data sources must be cited: published annual reports, balance sheets, and audited statements; unaudited or incomplete data must be acknowledged as a limitation.

Analysis should apply at least one tool of financial statement analysis, such as comparative or common-size statements, ratio analysis, or cash flow statement.

Viva questions typically test understanding of the chosen company, the ratios computed, their interpretation, and limitations of the analysis.

Marks are awarded for originality, depth of analysis, presentation, and accuracy of computations; copying published projects is penalised.

The written report should include a title page, certificate, acknowledgement, index, chapters, and bibliography in a prescribed format.

Partner's Capital Account is credited with opening capital, additional capital, interest on capital, salary/commission, and share of profit; debited with drawings, interest on drawings, and share of loss.

Drawings are withdrawals by a partner for personal use; interest on drawings is income to the firm and is credited to Profit and Loss Appropriation Account.

Fixed capital method: Capital Accounts remain unchanged except for additional capital or permanent withdrawal; all other adjustments go to Current Accounts.

Profit-sharing ratio may be changed with consent of all partners; the change is applied prospectively unless otherwise agreed.

Goodwill is valued by methods such as average profit, super profit, or capitalisation of average profit; the chosen method must be stated.

When a partner is admitted, the new partner's capital may be based on his share of the firm's adjusted capital or as agreed in the deed.

Interest on capital is allowed only out of profits unless the deed provides otherwise; if profits are inadequate, it is restricted to available profits.

At admission, the new partner may bring capital and goodwill; goodwill brought in cash is credited to old partners' capital accounts in sacrifice ratio.

If goodwill is not brought in cash, the new partner's capital account is debited with his share of goodwill and old partners credited in sacrifice ratio.

Revaluation profit or loss is shared by old partners only, since the revaluation relates to the period before reconstitution.

At retirement, the retiring partner's capital account is settled; his share of goodwill is compensated by gaining partners in gaining ratio.

On death, the deceased partner's share of profit till death is credited to his capital account; the amount is transferred to his executor's account.

Adjustment of capitals after admission may be done by bringing in or withdrawing cash to make capitals proportionate to profit-sharing ratio.

Sacrifice ratio = Old ratio - New ratio; gaining ratio = New ratio - Old ratio; the two must be distinguished in goodwill treatment.

Realisation Account is a nominal account; its balance (profit or loss) is transferred to partners' capital accounts in profit-sharing ratio.

Assets taken over by a partner are recorded by crediting Realisation Account and debiting the partner's capital account at agreed value.

Liabilities assumed by a partner are recorded by debiting Realisation Account and crediting the partner's capital account.

On dissolution, cash in hand is not transferred to Realisation Account; it is recorded in the Cash/Bank Account.

If a partner's capital account shows a debit balance and he is insolvent, the deficiency is shared by solvent partners in their capital ratio, not profit-sharing ratio.

Section 48 order: (1) third-party debts, (2) partners' loans, (3) partners' capitals, (4) surplus in profit-sharing ratio.

Dissolution expenses are debited to Realisation Account if borne by the firm, or to the partner's capital account if borne by him.

Application money must be at least 5% of the nominal value of shares; allotment and calls must follow the terms of the prospectus.

Securities Premium Account is a capital reserve and cannot be used to pay dividends; it is shown under reserves and surplus.

Calls-in-Arrears is deducted from called-up capital; if shares are forfeited, the amount already received is credited to Share Forfeiture Account.

Share Forfeiture Account is shown as a separate item in the balance sheet until reissue; the balance after reissue is transferred to Capital Reserve.

Issue of shares at discount requires compliance with Section 53 of the Companies Act 2013; only sweat equity shares may be issued at a discount.

Share capital is not a liability of the company; it is part of shareholders' funds and is shown under equity and liabilities.

Preference shares may be cumulative or non-cumulative, participating or non-participating, and redeemable or irredeemable as per the articles.

Debentures may be secured or unsecured, convertible or non-convertible, and redeemable or irredeemable.

Interest on debentures is calculated on the face value and paid periodically; it is shown as a finance cost in the Statement of Profit and Loss.

When debentures are issued at a discount, the discount is a loss and is written off over the life of the debentures.

When debentures are issued at a premium, the premium is a capital receipt and is credited to Securities Premium Account.

Debenture Redemption Reserve is created out of profits; it is transferred to General Reserve on redemption.

For redemption by conversion, the debenture holders are issued shares or new debentures; the conversion is recorded at the agreed value.

Own debentures purchased in the open market are cancelled and the profit or loss on cancellation is transferred to Capital Reserve.

Schedule III requires classification of assets and liabilities into current and non-current based on the operating cycle or 12 months, whichever is longer.

Revenue from operations includes sale of goods and services, less returns; other income includes interest, dividend, and rent.

Expenses are classified as cost of materials consumed, purchases, changes in inventories, employee benefits, finance costs, and depreciation.

Reserves and surplus include capital reserve, securities premium, general reserve, and surplus in Statement of Profit and Loss.

Trade payables are amounts due to suppliers for goods and services; trade receivables are amounts due from customers.

Contingent liabilities are disclosed in notes and are not recognised unless the outflow is probable and the amount can be reliably measured.

Deferred tax liability arises when book profit exceeds taxable income due to timing differences; deferred tax asset arises in the opposite case.

Debtors Turnover Ratio measures efficiency in collecting receivables; a high ratio indicates prompt collection and better liquidity.

Creditors Turnover Ratio = Net Credit Purchases / Average Trade Payables; it shows how quickly the firm pays its suppliers.

Working Capital Turnover Ratio = Revenue from Operations / Working Capital; it measures the efficiency of working capital utilisation.

Operating Profit Ratio = Operating Profit / Revenue from Operations x 100; it excludes non-operating income and expenses.

Return on Equity = Profit after Tax - Preference Dividend / Average Shareholders' Equity x 100.

Dividend Payout Ratio = Dividend per Share / Earnings per Share; it shows the proportion of earnings distributed to shareholders.

Ratios are classified as liquidity, solvency, activity (turnover), and profitability ratios; each serves a different analytical purpose.

Under the indirect method, cash from operations = net profit before tax + non-cash expenses - non-cash income +/- changes in working capital - income tax paid.

Purchase of fixed assets and sale of fixed assets are investing activities; the cash flow is the actual amount paid or received.

Issue of shares at premium: cash flow from financing includes the total amount received, including premium.

Redemption of debentures is a financing activity; interest paid on debentures is also financing for a non-financing company.

Cash flow from operations can also be computed by the direct method, which records actual cash receipts and payments.

Non-cash transactions, such as issue of bonus shares or conversion of debentures into shares, are excluded from the Cash Flow Statement.

The Cash Flow Statement reconciles opening and closing cash and cash equivalents and explains the change in cash position.

The project file should be neat, well-organised, and include a table of contents, page numbers, and headings.

The viva voce tests the student's understanding of the project, the tools used, and the conclusions drawn.

The written report should include the company profile, objectives, methodology, analysis, findings, and conclusion.

Data should be presented using tables and graphs to make the analysis clear and readable.

Limitations of the project, such as limited data or time, should be stated honestly in the report.

The project should demonstrate the application of at least one accounting tool, such as ratio analysis or cash flow analysis.

Marks are awarded for originality, depth, presentation, and accuracy; plagiarism is penalised.

Partnership deed is a written agreement among partners; it should be stamped and signed by all partners.

In the absence of a deed, interest on capital is not allowed, and profits are shared equally.

Partner's salary is an appropriation of profit and is debited to the Profit and Loss Appropriation Account.

Interest on partner's loan is a charge against profit and is allowed even if the firm incurs a loss.

Drawings are debited to the partner's capital or current account and credited to the cash/bank account.

Profit-sharing ratio can be changed with the consent of all partners; the change is applied prospectively.

Goodwill is an intangible asset and is not shown in the balance sheet unless purchased.

At admission, the new partner's share is deducted from the old partners' shares in their old ratio to compute the new ratio.

Revaluation Account is prepared at the time of reconstitution to record the effect of changes in the value of assets and liabilities.

Accumulated profits and reserves are distributed among old partners in their old profit-sharing ratio.

At retirement, the retiring partner's share of goodwill is compensated by the continuing partners in their gaining ratio.

On death, the deceased partner's share of profit till death is estimated and credited to his capital account.

If a partner's capital account shows a debit balance at retirement, it is borne by the remaining partners in their gaining ratio.

The executor's account is settled with interest at the agreed rate or the rate specified in the Partnership Act.

Dissolution of a firm means the firm ceases to exist; all assets are realised and liabilities paid.

Realisation Account records the sale of assets and payment of liabilities; its balance is transferred to partners' capital accounts.

Loss on realisation is borne by partners in their profit-sharing ratio.

A partner's loan is paid before the partners' capitals are returned.

If a partner is insolvent, his capital deficiency is shared by solvent partners in their capital ratio.

Unrecorded assets realised are credited to Realisation Account; unrecorded liabilities paid are debited to it.

Cash/Bank Account is prepared to record all cash receipts and payments on dissolution.

Share capital is divided into authorised, issued, subscribed, called-up, and paid-up capital.

Calls-in-Arrears is deducted from called-up capital; Calls-in-Advance is added to paid-up capital.

Securities Premium Account can be used only for specified purposes, such as issue of bonus shares or buyback.

Forfeiture of shares: Share Capital is debited with the called-up amount, and the amount received is credited to Share Forfeiture Account.

On reissue of forfeited shares, any discount is debited to Share Forfeiture Account.

The balance in Share Forfeiture Account after reissue is transferred to Capital Reserve.

Bonus shares are issued out of free reserves and are fully paid; they do not increase total shareholders' funds.

Debentures are issued at par, premium, or discount; the discount is written off over the life of the debentures.

Debenture interest is a charge against profit and is payable regardless of profit.

Debentures issued as collateral security are not recorded in the books until the loan is defaulted.

Redemption by lump sum: the amount is transferred to DRR and paid to debenture holders on maturity.

Redemption by instalments: the amount is debited to Debentures and credited to Debentureholders.

Redemption by conversion: debentures are converted into shares or new debentures, with no cash outflow.

Own debentures purchased in the open market are cancelled; profit or loss on cancellation is transferred to Capital Reserve.

Schedule III of the Companies Act 2013 prescribes the format of the balance sheet and statement of profit and loss.

The balance sheet is presented in vertical form with equity and liabilities on one side and assets on the other.

Current liabilities include short-term borrowings, trade payables, and short-term provisions.

Current assets include inventories, trade receivables, cash, and short-term loans.

Shareholders' funds include share capital, reserves and surplus, and money received against share warrants.

Contingent liabilities are disclosed in notes and are not recognised in the balance sheet.

Deferred tax arises from timing differences between accounting and taxable income.

Current Ratio = Current Assets / Current Liabilities; ideal is 2:1.

Quick Ratio = (Current Assets - Inventory - Prepaid Expenses) / Current Liabilities; ideal is 1:1.

Debt-Equity Ratio = Long-term Debt / Shareholders' Funds.

Proprietary Ratio = Shareholders' Funds / Total Assets.

Inventory Turnover = Cost of Revenue from Operations / Average Inventory.

Trade Receivables Turnover = Revenue from Operations / Average Trade Receivables.

Return on Investment = Net Profit before Interest and Tax / Capital Employed x 100.

Cash Flow Statement is prepared under AS-3 and classifies cash flows into operating, investing, and financing activities.

Operating activities include cash from revenue, payments to suppliers, and income tax paid.

Investing activities include purchase and sale of fixed assets and investments.

Financing activities include issue of shares, borrowings, and payment of dividends.

Non-cash expenses such as depreciation are added back to net profit.

Increase in current assets is deducted and increase in current liabilities is added in computing cash from operations.

Cash and cash equivalents include cash in hand, bank balances, and short-term investments with maturity of three months or less.

Project work carries 20 marks: project file (12), viva voce (4), and written report (4).

The project must state objectives, methodology, data, analysis, findings, and conclusion.

Acceptable topics include financial statement analysis, ratio analysis, cash flow analysis, and accounts of sole traders or partnerships.

Data sources must be cited; unaudited data must be acknowledged as a limitation.

At least one tool of financial statement analysis must be applied.

The viva tests understanding of the company, ratios, and conclusions.

Marks are awarded for originality, depth, presentation, and accuracy; plagiarism is penalised.