Capital in balance sheet

System
System Posts: 100,534 🤖 Admin 🤖
edited June 18 in AAT student discussion
Hi!

I'm doing some FRA revision and my brain is fried and just can't think straight!

Is this right - the capital account in the ledger will be a credit balance (money in - DR Bank, Cr Capital) as it is owed to the company owners/investors and is therefore a liability?

Also, if the total of P&L a/c's is a CR, this is a profit and a DR is a loss?

So why is it when you see a hard copy of final accounts, that capital and profit are both DR's??

Is this simply so when they are totalled it matches the net assets total (i.e. both are debits) and is easier for non-accounts people to understand (they might have a shock if profit was a minus figure!)?

Please someone explain - I can't cope! :-D


Comments

  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Capital in balance sheet

    Capital is always a credit and a credit balance on the P&L is a profit.

    The best guess I've got for your other question is that they're not Drs on the balance sheet. It's just convention to treat them as positive numbers rather then negatives and doesn't make any difference. Maybe someone can come up with a better explanation :?

    Chris



  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Capital in balance sheet


    phunkyphantom22 - I think you need to go tutored classes, I'm with BPP and their course notes and text books don't always explain things in the best way.

  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Capital in balance sheet

    Capital is a credit as techinally it is a liability. This amount is what the business owes its owner(s). Therefore it is an increase in liability and therefore a credit.

    Capital has nothing to do with profit as this figure goes in the balance sheet.

    As in the profit and loss account, profit is a credit. The credit side is where sales and revenue goes. They give you money so its increases your profit)as whereas debits in P&L decrease your profit (expenses & purchases) as they cost you money.

    I hope this help, but it get clearer if you practise ETB which show you the logic behind this (and improve your double entry).

    Next time your brain get fired - stop revising. I sure next time you revise you understand what you are doing



  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Capital in balance sheet

    Hi guys!

    Thanks for all your comments!

    Yeah I understand that capital is a credit and balance sheet and profit is P&L, it's just I am looking at a hard copy of my company's final accounts - the glossy brochure - and the capital and reserves part at the bottom of the balance sheet shows capital as a debit - is it simply as I said, so that non-accounts people can understand it?

    When we produce a balance sheet, should we be showing it as a credit or putting it down as a debit figure?
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Capital in balance sheet

    Do you mean they show it as:

    Capital and reserves
    Ordinary share capital ....
    Profit and loss account....

    All in the left hand column. If so - published accounts don't have a debit and credit column, in international standards everything is in one column, it's just presentation.

    Forgive me if I've misunderstood what you mean.

    Annette

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