Balance sheet of proprietorship firm
This query is : Resolved
23 May 2013
Why is the balance sheet of a proprietorship firm prepared seperately and not together with the propreitor?? The propritorship firm has no seperate legal status. I have come across rare cases where balance sheet of proprieotr and propritorship firm were prepared together. Whereas in most cases both the balance sheets are prepared seperately. Hence what could be the possible reasons behind preparing seperate balance sheet of a propritor and a propritorship firm.
Thanks and Regards
Yash Goyal
Thanks and Regards
Yash Goyal
22 June 2013
It is based on basic accounting principle of Business entity concept
Business entity concept
This concept assumes that, for accounting purposes, the business enterprise
and its owners are two separate independent entities. Thus, the business and
personal transactions of its owner are separate. For example, when the
owner invests money in the business, it is recorded as liability of the
business to the owner. Similarly, when the owner takes away from the
business cash/goods for his/her personal use, it is not treated as business
expense. Thus, the accounting records are made in the books of accounts
from the point of view of the business unit and not the person owning the
business. This concept is the very basis of accounting
Business entity concept
This concept assumes that, for accounting purposes, the business enterprise
and its owners are two separate independent entities. Thus, the business and
personal transactions of its owner are separate. For example, when the
owner invests money in the business, it is recorded as liability of the
business to the owner. Similarly, when the owner takes away from the
business cash/goods for his/her personal use, it is not treated as business
expense. Thus, the accounting records are made in the books of accounts
from the point of view of the business unit and not the person owning the
business. This concept is the very basis of accounting
Message likes :
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27 June 2013
Ok sir. This thing is pretty clear now. Just had one thing to clarify that in those few rare cases in which Balance sheet of proprietor and Proprietorship firm were prepared on a consolidated basis. That would be considered incorrect in the accounting sense?
27 June 2013
yes. preparing consolidated basis is incorrect
01 July 2013
Thank You sir.
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