Introduction to Company Account | Jamb(UTME) Principles of Accounts

Introduction to Company Accounts

1. Company accounts follow specific legal regulations.
2. They provide a true and fair view of financial position.
3. Separate legal entity concept applies to companies.
4. Company accounts distinguish between shareholders and management.
5. Companies prepare statutory financial statements.
6. Company accounts disclose share capital structure.
7. Profit distribution is recorded through dividends.
8. Companies comply with international accounting standards.
9. Directors' reports accompany company accounts.
10. Corporate governance principles influence financial reporting.
11. Company accounts include notes to the accounts.
12. Auditors examine and report on company accounts.
13. Provision for tax is a key item in company accounts.
14. Deferred tax is recorded in company accounts.
15. Reserves and surplus are part of company accounts.
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Formation and Classification of Companies

16. Companies are formed under the Companies Act.
17. Incorporation grants legal status to a company.
18. Public companies can offer shares to the public.
19. Private companies restrict share transfer.
20. Limited companies limit shareholder liability.
21. Unlimited companies expose owners to full liability.
22. Companies limited by guarantee operate for non-profit purposes.
23. Classification includes statutory companies created by law.
24. Registered companies are formed by registration.
25. Holding companies control other companies.
26. Subsidiary companies are controlled by holding companies.
27. One-person companies require only one member.
28. Companies can be classified by ownership or control.
29. Memorandum of Association defines company scope.
30. Articles of Association govern internal management.
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Issue of Shares and Debentures

31. Shares represent ownership in a company.
32. Debentures are instruments of debt.
33. Companies issue shares to raise equity capital.
34. Debentures attract fixed interest payments.
35. Share issue includes application, allotment, and calls.
36. Shares can be issued at par, premium, or discount.
37. Debenture redemption terms are stated at issue.
38. Prospectus is issued for public share offers.
39. Private placements avoid public issue procedures.
40. Preference shares carry fixed dividends.
41. Equity shares represent ownership control.
42. Debentures may be secured or unsecured.
43. Underwriting ensures full subscription of shares.
44. Oversubscription requires pro-rata allotment.
45. Calls-in-arrears are unpaid share calls.
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Procedures for Treating Issue of Shares and Debentures

46. Application money is collected at share application stage.
47. Allotment money follows share application acceptance.
48. Share capital account records issued share capital.
49. Securities premium is credited for shares issued above par.
50. Debenture issue expenses are amortized over time.
51. Underwriting commission is recorded as expense.
52. Calls-in-advance are recorded as liabilities.
53. Discount on issue of debentures is amortized to expense.
54. Interest on debentures is treated as finance cost.
55. Forfeited shares are recorded separately.
56. Reissue of forfeited shares is recorded at reissue price.
57. Share application refund is recorded on non-allotment.
58. Share issue costs reduce securities premium.
59. Redemption of debentures is treated via redemption reserve.
60. Premium on redemption of debentures is expensed.
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Final Accounts of Companies (15 points)

61. Companies prepare trading accounts.
62. Profit and loss accounts report operational results.
63. Balance sheets show financial position.
64. Cash flow statements report cash movements.
65. Statement of changes in equity shows capital changes.
66. Notes to accounts provide additional details.
67. Depreciation is charged on fixed assets.
68. Provision for doubtful debts adjusts receivables.
69. Accrued expenses are recorded as liabilities.
70. Prepaid expenses are recorded as assets.
71. Deferred revenue is recognized as liability.
72. Inventories are valued at lower of cost or net realizable value.
73. Contingent liabilities are disclosed in notes.
74. Dividends proposed are shown in equity section.
75. Tax provision is included in final accounts.
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Computing Elements of Final Accounts

76. Revenue is recognized when earned.
77. Cost of goods sold = Opening inventory + purchases - closing inventory.
78. Gross profit = Sales - cost of goods sold.
79. Operating expenses reduce gross profit to net profit.
80. Net profit = Gross profit - operating expenses.
81. Depreciation reduces asset value and profits.
82. Provision for tax is computed on net profits.
83. Net assets = Total assets - total liabilities.
84. Shareholders’ equity = Share capital + reserves and surplus.
85. Trade receivables are reduced by bad debt provisions.
86. Trade payables include accrued expenses.
87. Cash balance is computed from cash flow statements.
88. Dividends payable are recognized as liabilities.
89. Profit carried forward is added to reserves.
90. Intangible assets include goodwill and patents.
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Accounting Ratios: Calculation and Interpretation

91. Current ratio = Current assets ÷ current liabilities.
92. Current ratio measures short-term liquidity.
93. Ideal current ratio is 2:1.
94. Acid test ratio = (Current assets - inventory) ÷ current liabilities.
95. Acid test ratio measures immediate liquidity.
96. Ideal acid test ratio is at least 1:1.
97. Stock turnover ratio = Cost of goods sold ÷ average inventory.
98. High stock turnover indicates efficient inventory management.
99. Low stock turnover suggests slow-moving stock.
100. Debtors turnover ratio = Net credit sales ÷ average accounts receivable.
101. High debtor turnover shows efficient collection.
102. Creditors turnover ratio = Net credit purchases ÷ average accounts payable.
103. High creditors turnover indicates prompt payments.
104. Return on equity = Net profit ÷ shareholders' equity × 100.
105. Gross profit margin = Gross profit ÷ sales × 100.
106. Net profit margin = Net profit ÷ sales × 100.
107. Debt-equity ratio = Total debt ÷ shareholders' equity.
108. Asset turnover ratio = Net sales ÷ total assets.
109. Ratio analysis supports decision-making.
110. Ratios aid in comparing performance over periods.
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Distinction Between Capital and Revenue Reserves

111. Capital reserves arise from capital profits.
112. Revenue reserves come from operating profits.
113. Share premium is a capital reserve.
114. General reserve is a revenue reserve.
115. Capital reserves are not available for dividend distribution.
116. Revenue reserves can be distributed as dividends.
117. Capital reserves strengthen financial position.
118. Revenue reserves fund expansion and contingencies.
119. Revaluation surplus is a capital reserve.
120. Retained earnings are revenue reserves.
121. Capital profits include gains on asset sales.
122. Revenue profits arise from regular operations.
123. Clear distinction aids accurate financial reporting.
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Different Types of Companies (12 points)

124. Private limited companies restrict share transfer.
125. Public limited companies offer shares to the public.
126. Companies limited by guarantee support non-profit aims.
127. Unlimited companies expose owners to full liability.
128. Government companies have majority state ownership.
129. Foreign companies operate outside the home country.
130. Subsidiary companies are controlled by holding companies.
131. Listed companies trade shares on stock exchanges.
132. Dormant companies have no significant accounting transactions.
133. Non-profit companies pursue charitable objectives.
134. Multinational companies operate in multiple countries.
135. Professional companies are owned by professionals like lawyers or doctors.
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