BSEH SS Accountancy key terms

A business relationship where two or more persons agree to share the profits of a business carried on by all or any of them acting for all, governed by a written or oral agreement.

The proportion in which partners agree to divide profits and losses of the firm; in the absence of an agreement it is equal among all partners.

The account recording each partner's original contribution, additional capital, share of profits or losses, drawings, interest and salary, showing the balance due to or from the partner.

An auxiliary account used under the fixed capital method to record a partner's share of profit, drawings, interest on capital and salary, without disturbing the fixed capital balance.

Money or goods withdrawn by a partner from the firm for personal use; these reduce the partner's capital balance or are debited to the current account.

A charge levied on amounts withdrawn by a partner, debited to the partner and credited to the firm's profit, compensating the firm for funds taken out early.

An allowance credited to a partner based on the capital balance, treated as an appropriation of profit rather than an expense of the business.

An extension of the profit and loss account that shows how net profit is distributed among partners through interest on capital, salaries, commissions and transfers to reserves.

An arrangement where a partner is assured a minimum share of profit, with any shortfall borne by the guaranteeing partner or partners as agreed.

The proportion in which existing partners give up part of their profit share in favour of an incoming partner, computed as old share minus new share.

The proportion in which continuing partners acquire the share of a retiring or deceased partner, computed as new share minus old share.

The value of a firm's reputation, customer base and earning capacity beyond the value of its identifiable net assets, paid by an incoming partner or to a retiring one.

Goodwill inferred when a new partner pays a lump sum for a share but the agreement does not state goodwill, calculated by comparing the implied total capital with actual capital.

A nominal account prepared at reconstitution to record increases and decreases in the value of assets and liabilities, with the resulting gain or loss shared by old partners.

A revaluation account prepared when the partners do not wish to alter the book values in the ledger; it records revised values and the profit or loss is adjusted through capital accounts.

The induction of a new person into an existing firm, requiring adjustment of capital, goodwill, revaluation of assets and redistribution of profit shares.

A partner leaving the firm while the remaining partners continue the business, requiring settlement of the retiring partner's dues and adjustment of goodwill and reserves.

A liability account opened when the amount due to a retiring partner is not paid immediately and is retained in the business, usually carrying interest at the agreed rate.

The account opened in the firm's books in the name of the legal representative of a deceased partner to record the amount payable to the deceased partner's estate.

The event that dissolves the partnership between all partners but not the firm, entitling the deceased partner's estate to a share of profit up to the date of death.

The complete winding up of the firm's business, involving realisation of assets, payment of liabilities and final settlement of partners' accounts.

An account opened on dissolution to record the sale of assets, payment of liabilities and dissolution expenses, with the resulting profit or loss shared by partners.

Costs incurred in winding up the firm, such as legal fees and auction charges, normally borne by the firm and charged to the realisation account.

A situation where a partner's private assets are insufficient to meet obligations to the firm, with the deficiency borne by solvent partners in their capital ratio under the Garner v. Murray rule.

The maximum amount of capital a company is empowered to raise by issuing shares, stated in its memorandum of association and also called nominal or registered capital.

The portion of authorised capital actually offered to investors, which may be less than the amount the company is legally permitted to issue.

The amount actually received from shareholders on issued shares, excluding calls in arrears and including amounts credited as fully paid without cash.

The unpaid amount on shares where a shareholder has failed to pay an allotment or call money when due, shown as a deduction from subscribed capital.

Money received from shareholders before the corresponding call is made, a liability of the company usually earning interest until the call falls due.

Cancellation of shares when a shareholder defaults on calls, whereby amounts already received are retained and the shares revert to the company for reissue.

Sale of forfeited shares by the company, often at a discount that cannot exceed the amount originally forfeited, with any surplus transferred to capital reserve.

The amount received on shares or debentures above their face value, credited to a separate reserve usable only for specified purposes such as issuing bonus shares.

A written acknowledgement of debt issued by a company, usually carrying a fixed rate of interest and repayable at a stated date, with holders ranking as creditors.

A reserve created out of profits by companies required to do so, ensuring funds are available to repay debentures when they mature.

Discharge of the company's liability to debenture holders by repayment at maturity, through instalments, purchase in the open market or conversion into shares.

A technique of interpreting financial statements by computing relationships between related items, such as liquidity, solvency, activity and profitability ratios, to assess performance.

Current assets divided by current liabilities; it indicates a firm's ability to meet short-term obligations, with a value near 2:1 often considered satisfactory.

Long-term debt divided by shareholders' funds, showing the relative claim of outsiders and owners on the business and indicating financial risk.

A statement classifying cash receipts and payments into operating, investing and financing activities, reconciling opening and closing cash and cash equivalents.

The principal revenue-producing activities of an enterprise, including cash from sales, payments to suppliers and employees, and income tax paid.

Cash on hand, demand deposits and short-term highly liquid investments that are readily convertible into known amounts of cash with insignificant risk of value change.