The Accounting Equation
Now let us discuss the accounting equation, which keeps all the business accounts in balance. We will create this equation in steps to clarify your understanding of this concept. In order to start a business, the owner usually has to put some money down to finance the business operations. Since the owner provides this money, it is called Owner’s equity. In addition, this money is an Asset for the company. This can be represented by the equation:
ASSETS = OWNER’S EQUITY
If the owner of the business were to close down this business, he would receive all its assets. Let’s say that owner decides to accept a loan from the bank. When the business decides to accept the loan, their Assets would increase by the amount of the loan. In addition, this loan is also a Liability for the company. This can be represented by the equation:
Assets = Liabilities + Owner’s Equity
Now the Assets of the company consist of the money invested by the owner, (i.e. Owner’s Equity), and the loan taken from the bank, (i.e. a Liability). The company’s liabilities are placed before the owners’ equity because creditors have first claim on assets.
If the business were to close down, after the liabilities are paid off, anything left over (assets) would belong to the owner.
Financial Statements
In order to manage your business effectively you need reports that tell you how your business is performing. For example, you may want to know the value of your assets like, Cash you have on hand,Cash in bank, and Inventory in stock. In addition, you would like to know the value of your liabilities, loans, income earned, and expenses incurred. Accountants prepare financial statements that summarize these transactions. Two of the most important reports for managing your business are Income Statement and the Balance Sheet.
Income Statement
An Income Statement is also called a Profit and Loss Report. In addition, the word Revenue is often used in place of the word Income. An Income Statement is used to inform you about the income earned, expenses incurred, and the total profit or loss in a particular period. Two common periods for creating an income statement are monthly and annually.
This report summarizes all Income (or sales), the amounts that have been or will be received from customers for goods delivered or services rendered to them, and all expenses, the costs that have arisen in generating revenues. To show the actual profit or loss of a company, the expenses are subtracted from the revenues to show the Net Income – profit or the “bottom line”.
Income Accounts: These accounts are used to track income earned during the process of operating your business. The income of a business comes from sales to customers or fees for services or both. Some of the common names for income accounts are:
• Income from Sales
• Income from Freight
• Other Income
Expense Accounts: These accounts are used to track expenses incurred during the process of operating your business. Expenses include both the costs directly associated with creating products and general operating expenses. Some of the common names for expense accounts are:
• Cost of Sales
• Office Supplies
• Utilities
Companies act sections
Sections
1. Short title, commencement and extent
2. Definitions
2A. Interpretation of certain words and expressions
3. Definitions of "company", "existing company", "private company" and "public company"
4. Meaning of "holding company" and "subsidiary"
4A. Public financial institutions
5. Meaning of "officer who is in default"
6. Meaning of "relative"
7. Interpretation of "person in accordance with whose directions or instructions directors are accustomed to act"
8. Power of Central Government to declare an establishment not to be a branch office
9. Act to override memorandum, articles, etc.
10. Jurisdiction of courts
10A. [Omitted]
10B. [Omitted]
10C. [Omitted]
10D. [Omitted]
INCORPORATION OF COMPANY AND MATTERS INCIDENTAL THERETO
11. Prohibition of associations and partnerships exceeding certain number
12. Mode of forming incorporated company
13. Requirements with respect to memorandum
14. Form of memorandum
Page 2 of 332
15. Printing and signature of memorandum
15A. Special provision as to alteration of memorandum consequent on alteration of name of State of Madras
15B. Special provision as to alteration of memorandum consequent on alteration of name of State of Mysore
16. Alteration of memorandum
17. Special resolution and confirmation by Company Laws Board required for alteration of memorandum
17A. Change of registered office within a State
18. Alteration to be registered within three months
19. Effect of failure to register
20. Companies not to be registered with undesirable names
21.Change of name by company
22. Rectification of name of company
23. Registration of change of name and effect thereof
24. Change of name of existing private limited companies
25. Power to dispense with "Limited" in name of charitable or other company
26. Articles prescribing regulations
27. Regulations required in case of unlimited company, company limited by guarantee or private company limited by
shares
28. Adoption and application of Table A in the case of companies limited by shares
29. Form of articles in the case of other companies
30. Form and signature of articles
31. Alteration of articles by special resolution
32. Registration of unlimited company as limited, etc.
33. Registration of memorandum and articles
34. Effect of registration
35. Conclusiveness of certificate of incorporation
36. Effect of memorandum and articles
37. Provision as to companies limited by guarantee
38. Effect of alteration in memorandum or articles
39. Copies of memorandum and articles, etc., to be given to members
40. Alteration of memorandum or articles, etc., to be noted in every copy
41. Definition of "member"
42. Membership of holding company
43.Consequences of default in complying with conditions constituting a company a private company
43A Private company to become public company in certain cases
44. Prospectus or statement in lieu of prospectus to be filed by private company on ceasing to be private company
45. Members severally liable for debts where business carried on with fewer than seven, or in the case of a private
company, two members
46. Form of contracts
47. Bills of exchange and promissory notes
48. Execution of deeds
49. Investments of company to be held in its own name
50. Power for company to have official seal for use outside India
51. Service of documents on company
52. Service of documents on Registrar
53. Service of documents on members by company
54. Authentication of documents and proceedings
Now let us discuss the accounting equation, which keeps all the business accounts in balance. We will create this equation in steps to clarify your understanding of this concept. In order to start a business, the owner usually has to put some money down to finance the business operations. Since the owner provides this money, it is called Owner’s equity. In addition, this money is an Asset for the company. This can be represented by the equation:
ASSETS = OWNER’S EQUITY
If the owner of the business were to close down this business, he would receive all its assets. Let’s say that owner decides to accept a loan from the bank. When the business decides to accept the loan, their Assets would increase by the amount of the loan. In addition, this loan is also a Liability for the company. This can be represented by the equation:
Assets = Liabilities + Owner’s Equity
Now the Assets of the company consist of the money invested by the owner, (i.e. Owner’s Equity), and the loan taken from the bank, (i.e. a Liability). The company’s liabilities are placed before the owners’ equity because creditors have first claim on assets.
If the business were to close down, after the liabilities are paid off, anything left over (assets) would belong to the owner.
Financial Statements
In order to manage your business effectively you need reports that tell you how your business is performing. For example, you may want to know the value of your assets like, Cash you have on hand,Cash in bank, and Inventory in stock. In addition, you would like to know the value of your liabilities, loans, income earned, and expenses incurred. Accountants prepare financial statements that summarize these transactions. Two of the most important reports for managing your business are Income Statement and the Balance Sheet.
Income Statement
An Income Statement is also called a Profit and Loss Report. In addition, the word Revenue is often used in place of the word Income. An Income Statement is used to inform you about the income earned, expenses incurred, and the total profit or loss in a particular period. Two common periods for creating an income statement are monthly and annually.
This report summarizes all Income (or sales), the amounts that have been or will be received from customers for goods delivered or services rendered to them, and all expenses, the costs that have arisen in generating revenues. To show the actual profit or loss of a company, the expenses are subtracted from the revenues to show the Net Income – profit or the “bottom line”.
Income Accounts: These accounts are used to track income earned during the process of operating your business. The income of a business comes from sales to customers or fees for services or both. Some of the common names for income accounts are:
• Income from Sales
• Income from Freight
• Other Income
Expense Accounts: These accounts are used to track expenses incurred during the process of operating your business. Expenses include both the costs directly associated with creating products and general operating expenses. Some of the common names for expense accounts are:
• Cost of Sales
• Office Supplies
• Utilities
Companies act sections
Sections
1. Short title, commencement and extent
2. Definitions
2A. Interpretation of certain words and expressions
3. Definitions of "company", "existing company", "private company" and "public company"
4. Meaning of "holding company" and "subsidiary"
4A. Public financial institutions
5. Meaning of "officer who is in default"
6. Meaning of "relative"
7. Interpretation of "person in accordance with whose directions or instructions directors are accustomed to act"
8. Power of Central Government to declare an establishment not to be a branch office
9. Act to override memorandum, articles, etc.
10. Jurisdiction of courts
10A. [Omitted]
10B. [Omitted]
10C. [Omitted]
10D. [Omitted]
INCORPORATION OF COMPANY AND MATTERS INCIDENTAL THERETO
11. Prohibition of associations and partnerships exceeding certain number
12. Mode of forming incorporated company
13. Requirements with respect to memorandum
14. Form of memorandum
Page 2 of 332
15. Printing and signature of memorandum
15A. Special provision as to alteration of memorandum consequent on alteration of name of State of Madras
15B. Special provision as to alteration of memorandum consequent on alteration of name of State of Mysore
16. Alteration of memorandum
17. Special resolution and confirmation by Company Laws Board required for alteration of memorandum
17A. Change of registered office within a State
18. Alteration to be registered within three months
19. Effect of failure to register
20. Companies not to be registered with undesirable names
21.Change of name by company
22. Rectification of name of company
23. Registration of change of name and effect thereof
24. Change of name of existing private limited companies
25. Power to dispense with "Limited" in name of charitable or other company
26. Articles prescribing regulations
27. Regulations required in case of unlimited company, company limited by guarantee or private company limited by
shares
28. Adoption and application of Table A in the case of companies limited by shares
29. Form of articles in the case of other companies
30. Form and signature of articles
31. Alteration of articles by special resolution
32. Registration of unlimited company as limited, etc.
33. Registration of memorandum and articles
34. Effect of registration
35. Conclusiveness of certificate of incorporation
36. Effect of memorandum and articles
37. Provision as to companies limited by guarantee
38. Effect of alteration in memorandum or articles
39. Copies of memorandum and articles, etc., to be given to members
40. Alteration of memorandum or articles, etc., to be noted in every copy
41. Definition of "member"
42. Membership of holding company
43.Consequences of default in complying with conditions constituting a company a private company
43A Private company to become public company in certain cases
44. Prospectus or statement in lieu of prospectus to be filed by private company on ceasing to be private company
45. Members severally liable for debts where business carried on with fewer than seven, or in the case of a private
company, two members
46. Form of contracts
47. Bills of exchange and promissory notes
48. Execution of deeds
49. Investments of company to be held in its own name
50. Power for company to have official seal for use outside India
51. Service of documents on company
52. Service of documents on Registrar
53. Service of documents on members by company
54. Authentication of documents and proceedings
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