12. Equity Flashcards

1
Q

How to close drawings account end of the financial year?

What the double entries?

A

Close to “capital” account.

Dr Capital total drawings
Cr Drawings total drawings

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2
Q

Which two transactions that must be done to the capital account at the end of the financial year? What are the double entries?

A

1.Transfer total drawings to capital account
Dr Capital total drawings
Cr Drawings total drawings

  1. Transfer profit or loss to the capital account.
    Dr Income summary profit amt
    Cr Capital profit amt

Or

Dr Capital loss amt
Cr Income summary loss amt

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3
Q

What causes the change in capital?

A
  1. Capital contribution
  2. Drawings by owner
  3. Profit for the year or loss for the year
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4
Q

Double entries for new shares issued

A

Dr cash at bank $XX
Cr share capital $XX

  • $XX = price per share number of new shares issued
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5
Q

Double entries for declare dividend

A

Dr Dividend $AA
Cr Dividend payable $AA

*$AA = dividend per share x total number of shares

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6
Q

What are the two transactions that must be done to the retained account at the end of the financial year? What are the double entries

A

1.Transfer Dividend to Retained earning
Dr Retained earnings $AA
Cr Dividend $AA

  1. Transfer profit or loss to the retained earningsl account.
    Dr Income summary profit amt
    Cr Retained earnings profit amt

Or

Dr Retained earnings loss amt
Cr Income summary loss amt

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7
Q

Double entries for paid dividend next year

A

Dr Dividend payable $AA

Cr Cash at bank $AA

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8
Q

Define dividend.

A

Part of the profits distributed to the shareholders.

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9
Q

Defined retained earning

A

Accumulated profits over the years that are not distributed to the shareholders

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10
Q

Define share capital

A

The amount of money business raised by selling company shares.

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11
Q

What causes the shareholder’s equityof the business to change?

A
  1. Issue of new shares
  2. Profit for the year or losses for the year
  3. Dividend declared in the current financial year.
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12
Q

What is a negative balance of retained earning called?

A

Accumulated losses

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13
Q

Nature of theses account

a. Share capital
b. Retained earnings
c. Dividend
d. Dividend payable

A

a. Share capital - CR
b. Retained earnings - CR
c. Dividend - DR
d. Dividend payable – CR

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14
Q

Advantages of limited company over sole proprietor

A
  1. Limited liability for the shareholders
  2. Easier for the companies to raise funds as banks are more willing to grant loans to companies
  3. Continuity as company has a longer business lifespan than a sole proprietorship which may end at the death of a sole proprietorship.
  4. Limited company is able to issue shares to rise capital
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