The balances of the property rights accounts are transferred from the trial balance to the property rights list, as well as the result of the income statement from profit or loss to this list.
List of property rights
Ownership rights are defined as the obligations owed by the facility towards the owner of the facility or partners (owners), and this list is prepared to know the changes that occurred in the rights of the owners of the facility during the period or fiscal year, as property rights increase with capital increase and profits, and property rights decrease with capital reductions and withdrawals Personal and losses, and the items of the list differ according to the legal form of the establishment, whether it is a sole proprietorship (owned by an individual), a partnership of persons (owned by more than one person) or a money company (shares). The way the list works for partnership companies and the method of distributing profits and losses among partners will be explained in the coming lessons. Now, the form of the list of changes in the ownership rights of a sole proprietorship will be clarified.
Ownership rights are defined as the obligations owed by the facility towards the owner of the facility or partners (owners), and this list is prepared to know the changes that occurred in the rights of the owners of the facility during the period or fiscal year, as property rights increase with capital increase and profits, and property rights decrease with capital reductions and withdrawals Personal and losses, and the items of the list differ according to the legal form of the establishment, whether it is a sole proprietorship (owned by an individual), a partnership of persons (owned by more than one person) or a money company (shares). The way the list works for partnership companies and the method of distributing profits and losses among partners will be explained in the coming lessons. Now, the form of the list of changes in the ownership rights of a sole proprietorship will be clarified.
From the previous form of the list, you will find that the list of property rights includes the following elements: Elements and items of the list of property rights:
Capital account at the beginning of the period.
Adding new capital during the current period, and this increases the property rights for the owner of the facility. .
Reducing the capital during the current period, and this leads to a reduction in property rights for the account of the owner of the establishment.
Personal withdrawals during the period, and this leads to a reduction in the property rights of the owner of the facility.
The net profit achieved during the current period, and this increases the property rights of the owner of the facility.
The net loss achieved during the period leads to a decrease in the property rights for the account of the owner of the facility.
The capital account at the end of the period (net equity), and the balance of this account will appear when preparing the statement of financial position.
Example
On 01/01/2015, the balance of the capital account of the Peace Office was $8,000. During the year, the following financial transactions took place:
On 12/31/2015, the total values of personal cash and in-kind withdrawals by the owner of the office equaled $3,000.
On 12/31/2015, Al-Salam Office achieved a net profit of $16,300.
Required:
Preparing a list of changes in equity on 12/31/2015
On 12/31/2015, Al-Salam Office achieved a net profit of $16,300.
Required:
Preparing a list of changes in equity on 12/31/2015
the solution:
When these accounts are closed in the capital, the capital account will appear with the new balance as follows:
Capital account on 12/31/2015
Capital account on 12/31/2015
him to him
3000 personal withdrawals 8000 balance at the beginning of the period
21300 credit balance 16300 profit for the period (income summary)
Capital account on 12/31/2015
him to him
3000 personal withdrawals 8000 balance at the beginning of the period
21300 credit balance 16300 profit for the period (income summary)
When these accounts are closed in the capital, the capital account will appear with the new balance as follows:
Notes on the solution:
The data in this example are the same as those in the previous income statement lesson.
The ownership rights of the owner of the establishment have changed from 8000 dollars and became equal to 21300 dollars, which represents the value of the obligation owed by the office in favor of the owner of the office.
The account of personal withdrawals and profits of the current period in the capital account has been closed to show the net value of the capital, but in practice and in accordance with the laws in force in some countries, changing the capital account from one financial period to another requires procedures and legal changes, so it is preferable to close These accounts are in the current account of the owner of the facility or in the account of retained profits and losses so that the capital account remains constant as it is registered in the contract of the facility, and this is what will be explained in the coming lessons.
The data in this example are the same as those in the previous income statement lesson.
The ownership rights of the owner of the establishment have changed from 8000 dollars and became equal to 21300 dollars, which represents the value of the obligation owed by the office in favor of the owner of the office.
The account of personal withdrawals and profits of the current period in the capital account has been closed to show the net value of the capital, but in practice and in accordance with the laws in force in some countries, changing the capital account from one financial period to another requires procedures and legal changes, so it is preferable to close These accounts are in the current account of the owner of the facility or in the account of retained profits and losses so that the capital account remains constant as it is registered in the contract of the facility, and this is what will be explained in the coming lessons.
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