Answered: The proprietary theory, the entity…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

The proprietary theory, the entity theory, and the funds theory are three approaches to accounting for equities.

Required:

a. Describe briefly each of these theories

b. State your reasons for emphasizing the application of one of these theories to each of the following:

i. Single proprietorship

ii. Partnership

iii. Financial institutions (banks)

iv. Consolidated statements

v. Estate accounting

Definition Definition Arrangement between two or more people whereby they agree to manage business operations and share its profits and losses in an agreed ratio. The agreement drafted and signed by the partners of the firm is termed as a partnership deed and contains various important clauses agreed between the partners such as profit/loss sharing, interest on capital, remuneration allocation of each partner, and drawings of a partner.

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