19 September 2010
Dear Experts, One of our clients is doing a business and he carries the business in the sole proprietor name. It is a tax audit case. My doubt is since we are filing the I.T. return in the name of the assessee (individual) 1)Whether other than the business properties such as (house property registered in his name) should be shown in the balance sheet? 2)Any investment (made in shares,NSC,KVP,Mutual Funds, Bonds,LIC etc) should be shown in the balance sheet? 3) The assessee often draws money from his Savings Bank A/c(i.e. account maintained for his own use not for business purpose) and put those money in the business....the problem is the amount put into the business is not reflecting in the credit side of the current account...somewhere it is accounted...Can i ask the client to pass the entries like this. In the books of business: Cash A/c Dr. 100 To Current A/c 100 (being the amount brought in for the business) Exp. A/c Dr. 85 To Cash A/c 85 (being the payment for exp.) P&L A/c Dr. 85 To Exp. A/c 85 (exp. being tfrd. t p&L a/c on finalisation stage) In the books of individual: Cash A/c Dr. 100 To SB A/c 100 (being amount with drawn) Business Contrn. A/c Dr. 100 To Cash A/c 100 (being amount put into the business) Are the above entries correct?
The problem is the assessee maintains only one books of accounts, in this he has included the SB A/c, thats why this confusion. If anyone can give me more clarification it will be great help for me. With regards, Rajesh.
24 September 2010
Hi Rajesh, the answer to ur Q is : 1)and 2)a)prepare profit n Loss A/c and a balance sheet of sole proprietory business and find out his capital invested. b) now prepare one more balance sheet showing all his assets like residential property, invt. made in NSC, KVP, shares etc. as also investment in proprietory business (equal to his capital invested as per a ) above on the assets side. On liab side show all his personal liablities and the resultant figure will be his capital. 3) when the cash is withdrawn from personal SB A/c and used for business, the following entries will be passed in the books of individual : Cash A/c Dr. To SB A/c Invt. in proprietory business(name) A/c Dr. To Cash A/c In the books of Business : Cash A/c Dr. To Capital A/c when cash spent for business purpose Exp. A/c Dr. To Cash A/c At the year end, exp. trf. to P/L A/c P/L A/c Dr. to Exp A/c What I understand from current A/c here is the Current A/c with bank as in case of sole proprietor there is no question of separate capital and current A/c.If cash withdrawn from SB A/c is deposited in current A/c then only: Current A/c Dr. To Cash A/c Current A/c balance increases with more deposits and reduces due to payments. when cash is deposited then it will get debited (not credited) If u hv any further doubt, revert back to me. Regards, CA Shkauntala Chhangani
CAclubindia
