Final Accounts, Parternships and Companies

Under the traditional approach assets are shown as debit balances and liabilities and equities are shown as credit balances. Increases in assets are recorded as debits and decreases as credits; reverse for liabilities and equities.

An advantage of the worksheet approach is that we know at the end of an excerisie whether the accounts are balanced. In the traditional 'T' accounts we have to extract this from a trial balance, a statement of all financial accounts and their debit or credit balances to ensure equality. Transactions were traditionally entered into a journal before being transferred to a ledger.

Differences between the traditional journal and ledger and modern worksheet approach are not differences in principle.

Different organisation structure affects the preparation of final accounts; a partnership is easily formed by two or more people by written or verbal agreement, with limited rules - not subject to the Corporations Act , not usually required to prepare financial statements, distributes requirements of skills and capital among the partners, and may have income tax advantages as it is not a separate legal entity. A partnership has a limited life, unlimited liability and mutual agency. The main and obvious typical accounting difference is the distribution statement.

In contrast companies can be private (limited by shares or unlimited with share capital), public (limited by shares, limited by guarantee unlimited with share capital, or no liability). Private or Proprietary companies must be between one and fifty members, must have Proprietary or Pty Ltd after their legal name, usually family companies. A small proprietary company has two of the three of; sales less than $10 million, asets of less than $5 million, fewer than 50 employees. Small Pty Ltd companies are not generally required to prepare audited financial statements. All others are required to lodge such statements with the ASIC, unless granted an exemption.

Public companies have at least one member with no maximum. It can invite members to subscribe to shares or debentures. Must have the words Ltd after the company name. Is subject to the Company Act. Limited by Guarantee means the members undertake to provide a guaranteed amount of money in the event of liquidation; such a company does not have share capital. Usually used for sporting clubs and not-for-profits. Unlimited liabilityes means all members are liable for all debts; not common in Australia although some mutual funds are organised this way. No liabilities companies is restricted to mining companies has the word or acrynom NL as part of the company name.

Companies are separate legal entities with limited liability (limited to value of shares). They are capable of raising mor capital, ownership is easily transferred, there is no mutual agency (shareholders cannot enter contracts that would bind the company), typically has professional management and continious existence.

The major difference in company financial statements is that there is invariably comparative figures from the previous years as well as references. The balance sheet of a company includes shareholder's equity; paid up capital, retained profits and reserves. Unlike a partnership or sole trader, a company is required to pay taxation.