Business Enterprise - Management Science-II Prof....

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Management Science-II Prof. R.Madumathi Indian Institute of Technology Madras MODULE 2 Business Enterprise Business Enterprise The business enterprise during its existence, over a period of time, accumulates certain real properties termed as assets of the business enterprise. These assets are acquired by the business through funds that are made available through borrowings or through owners' contribution. Financial Statements Financial Statements present the financial activities of the business. The accounting premise in the formulation of financial statements can be stated as: Assets = Liabilities + Owners' Contribution Types Of Financial Statements Balance Sheet Income Statement Cash Flow Statement
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Management Science-II Prof. R.Madumathi Indian Institute of Technology Madras Balance Sheet The balance sheet consolidates the asset value and capital and liability value of a business enterprise as on a specific day of the accounting year. In order to acquire the assets, the business enterprise has to use its own capital or has to borrow the required funds. The matching of assets (application of funds) with the sources of funds is shown in the balance sheet statement. Balance Sheet Components
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Management Science-II Prof. R.Madumathi Indian Institute of Technology Madras Owner’s Contribution / Capital Share Capital Owners' contribution is the fund that has been provided by the promoters and shareholders of the business enterprise. Their contribution is termed as capital. The capital of a business enterprise that has many public/private owners in units called shares is referred to as share capital. The shares may be issued as ordinary share capital or preference share capital. Ordinary share capital is the shares that are usually issued by business enterprises, which carries with them a voting right. They are entitled to a share in the profits of the business enterprise too. The profits may either be distributed among the shareholders as dividend or retained with the business enterprise itself as reserves. Owner’s Contribution / Capital Share Capital Certain type of shareholders may have special preference with respect to the dividend payments or the capital amount according to the terms of issue. They are referred to as Preferential shareholders Reserves The capital reserves (profits) may arise from revaluation of assets, the purchase of shares of other business enterprises or due to the payback of its own shares. Revenue reserves (profits) represent profits that are retained in the business enterprise to be used latter. Both the capital
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Management Science-II Prof. R.Madumathi Indian Institute of Technology Madras reserves and the revenue reserves belong to owners and hence they are owners' funds .
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Business Enterprise - Management Science-II Prof....

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