KSEAB II PUC Accountancy cheat sheet

Partnership deed is the written agreement among partners; in its absence, the Indian Partnership Act 1932 defaults apply: no interest on capital or drawings, profits shared equally, no salary to partners.

Profit-sharing ratio applies to both profits and losses unless a separate loss-sharing ratio is agreed.

Interest on partner's drawings is charged to the partner's capital/current account and credited to Profit and Loss Appropriation Account.

Interest on capital is allowed only out of profits unless the deed says otherwise; it is a charge against profits when the deed provides for it.

When capitals are fixed, all adjustments (drawings, interest, salary, share of profit) pass through the Partners' Current Accounts.

When capitals are fluctuating, the same adjustments are recorded directly in the Partners' Capital Accounts.

Profit and Loss Appropriation Account is prepared after the Profit and Loss Account; its balance is nil because the profit is fully distributed.

A partner's loan to the firm carries interest at 6% p.a. when the deed is silent, and it is a charge against profits, not an appropriation.

Guarantee of minimum profit: the deficiency is borne by the guaranteeing partner(s) in the agreed ratio and debited to their capital accounts.

At admission, the new partner's share is acquired from old partners; sacrificing ratio = old ratio minus new ratio.

Goodwill brought in cash by the incoming partner is distributed among sacrificing partners in the sacrificing ratio.

When goodwill is not brought in cash, the new partner's share of goodwill is debited to the new partner's capital account and credited to sacrificing partners' capital accounts.

Revaluation Account records the gain or loss on revaluation of assets and liabilities; profit is credited to all old partners in the old ratio.

At admission, the new partner does not share the pre-admission reserves and accumulated profits/losses; these are distributed among old partners.

At retirement, gaining ratio = new ratio minus old ratio; the retiring partner's share of goodwill is compensated by gaining partners.

On retirement or death, the retiring/deceased partner's capital account is settled with share of goodwill, revaluation profit, reserves, interest on capital and share of profit up to the date of retirement/death.

In case of death, the executor's account is credited with the amount due; the firm may pay interest on the unpaid balance at the rate stated in the deed.

Profit of the current year up to the date of death/retirement is estimated either on a time basis or on a turnover (sales) basis.

Dissolution of partnership changes the relation among partners; dissolution of firm closes the business and settles all accounts.

Realisation Account is opened to record the sale of assets and payment of liabilities; only assets and liabilities appearing in the balance sheet are transferred to it.

Assets realised and liabilities paid are recorded in Realisation Account; the resulting balance is profit or loss on realisation.

Profit or loss on realisation is shared by all partners in the profit-sharing ratio.

Cash or bank account is not transferred to Realisation Account; it is used to settle the realisation proceeds and payments.

Any partner's loan is paid before the partners' capitals are settled; partner's loan is a liability of the firm, not a capital item.

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

On dissolution, the partners' capital accounts are settled after transferring accumulated reserves, fictitious assets and profit/loss on realisation.

If a partner becomes insolvent and cannot bring in his deficiency, the deficiency is borne by the other solvent partners in their capital ratio (Garner v. Murray rule).

Authorised capital is the maximum amount a company can issue as stated in the Memorandum of Association; issued capital is the portion actually offered.

Subscribed capital is the part of issued capital taken up by the public; called-up capital is the part demanded on shares.

Paid-up capital is called-up capital less calls in arrears; it can be less than called-up capital.

Shares can be issued at par, at a premium, or at a discount; premium is credited to Securities Premium Account, which is a capital reserve.

Securities Premium can be used only for issuing fully paid bonus shares, writing off preliminary expenses, or premium on redemption of debentures/preference shares.

Calls in arrears is a current asset shown under the head 'Current Assets' in the balance sheet; calls in advance is a current liability.

When shares are issued for consideration other than cash, the asset received is debited and share capital credited.

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

Reissue of forfeited shares at a discount cannot exceed the amount in the Share Forfeiture Account for those shares.

Debentures are long-term borrowings; interest on debentures is a charge against profit and is paid even when there is a loss.

Debentures can be issued at par, at premium, or at a discount; discount on issue is written off against Securities Premium or Profit and Loss.

Debenture holders are creditors of the company and have no voting rights; they are paid before shareholders on winding up.

Redemption of debentures can be done by payment in lump sum, in instalments, by purchase in the open market, or by conversion into shares.

Debenture Redemption Reserve (DRR) must be created out of profits for redemption of debentures as per the Companies Act 2013 (for listed and certain other companies).

Debenture Redemption Investment (DRI) of 15% of the debenture liability must be invested in specified securities before redemption, as applicable.

Interest on debentures is calculated on the face value of debentures outstanding for the period, not on the issue price.

When debentures are purchased in the open market for cancellation, the difference between the purchase price and the face value is profit or loss on redemption.

Loss on issue of debentures is debited to a 'Loss on Issue of Debentures Account' and written off over the life of debentures or against Securities Premium.

Financial statements of a company are prepared as per Schedule III of the Companies Act 2013, which prescribes the format of the Balance Sheet and Statement of Profit and Loss.

Balance Sheet is presented in vertical form with two main heads: Equity and Liabilities, and Assets, each divided into non-current and current.

Shareholders' funds include Share Capital, Reserves and Surplus, and Money received against share warrants.

Non-current liabilities include long-term borrowings, deferred tax liabilities and long-term provisions.

Current assets are those expected to be realised within 12 months or in the normal operating cycle; includes inventories, trade receivables, cash and cash equivalents.

Statement of Profit and Loss is prepared as per the format: Revenue from operations, Other Income, Expenses, Profit before Tax, Tax, Profit after Tax.

Other comprehensive income and total comprehensive income are shown in the Statement of Profit and Loss as per Schedule III.

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

Reserves and Surplus is shown under Shareholders' Funds; a debit balance of the Statement of Profit and Loss is shown as a negative item.

Comparative statement shows figures of two or more years side by side and computes absolute change and percentage change.

Percentage change = (Current year amount minus Previous year amount) divided by Previous year amount, multiplied by 100.

Comparative Balance Sheet shows assets, liabilities and equity for two years; comparative Statement of Profit and Loss shows revenue and expenses for two years.

Common-size statement expresses each item as a percentage of a common base; in a balance sheet, base is total assets (or total equity and liabilities = 100).

In a common-size Statement of Profit and Loss, Revenue from Operations is taken as 100 and every other item is expressed as a percentage of it.

Common-size statements help compare firms of different sizes because absolute figures are converted into percentages.

Trend percentages are computed by taking the base year as 100 and expressing other years relative to it.

Comparative statements help identify changes in individual items; common-size statements help identify the relative importance of each item.

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

Quick Ratio (Acid Test) = Quick Assets / Current Liabilities; ideal is 1:1. Quick assets exclude inventory and prepaid expenses.

Debt-Equity Ratio = Long-term Debt / Shareholders' Funds; ideal is 2:1 or lower.

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

Debt to Total Assets Ratio = Debt / Total Assets.

Gross Profit Ratio = Gross Profit / Revenue from Operations × 100.

Net Profit Ratio = Net Profit after Tax / Revenue from Operations × 100.

Operating Ratio = Operating Cost / Revenue from Operations × 100; operating cost = cost of goods sold + operating expenses.

Inventory Turnover Ratio = Cost of Goods Sold / Average Inventory; average inventory = (Opening + Closing)/2.

Debtors Turnover Ratio = Credit Sales / Average Trade Receivables; average collection period = 365 / turnover ratio.

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

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

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

Operating activities: cash from revenue, payments to suppliers and employees, taxes paid; can be prepared by direct or indirect method.

Investing activities include purchase and sale of fixed assets, investments, and interest/dividend received (unless for a financial enterprise).

Financing activities include issue of shares and debentures, borrowing and repayment of loans, and payment of dividends and interest.

Under the indirect method, net profit before tax is adjusted for non-cash items like depreciation, then for changes in working capital.

Increase in current assets decreases cash flow; increase in current liabilities increases cash flow.

Interest paid on borrowings is classified as a financing activity for a non-financial enterprise.

Non-cash transactions (like issue of shares for assets) are excluded from the Cash Flow Statement and disclosed separately.

A computerised accounting system uses software to record, classify and summarise transactions; it replaces manual ledgers with databases.

Advantages include speed, accuracy, large data handling, scalability, and automatic generation of reports.

Components of a computerised accounting system: hardware, software, people, procedures and data.

Accounting software may be readymade (off-the-shelf), customised, or tailor-made; readymade is cheaper but less flexible.

A database is an organised collection of data; a DBMS manages the data and allows querying and reporting.

Codification of accounts assigns unique codes to ledger accounts to speed up data entry and retrieval.

Security features include password protection, user access rights, audit trail and data backup.

Grouping and classification in software (assets, liabilities, income, expenses) determines how reports like trial balance and balance sheet are generated.

A computerised system cannot replace professional judgement; the accountant still decides classification and treatment.