Question on accounts

No. I will undoubtably fail to explain it right so I recomend this excellent page I stumbled across recently when studying:

Reserves are the money held by the shareholders which may or may not be the entirity of the profits depending on what the business is planning for the profits.

Hope that makes it a little clearer

No. Profits are part of the reserve, but depending on what the business intends on doing with the money may not be the entirity of the reserve.

Reserves includes the revalutation reserve which is potential profit, not actual profit. They also include the share premium account which may or may not have been taken from the same years profits.

In a simple (ie a sole trader) account the two figures may very well be the same as there may be no share premium account or revaluation reserve, but they do not mean the same thing.

Hope this helps. It's a little late, so it may not make too much sense.

I find this page really handy

dc

"dc" wrote

How could a sole tradership possibly have a share premium account?

Re-phrase there >will< be no share premium account

d'oh - posting late and all that

dc

Hmm. Well it wouldn't be a very interesting assignment question if it had a simple yes-no answer, would it?

Yes, reserves are the same as profits, in the sense that it's (mostly) profits which have gone into building them up.

No, they are not the same as profits, in the sense that reserves transcend the accounting period. So it would be a coincidence if this year's reserves were the same as this year's profits. This year's profits, if not drawn (sole trader, parnetship) or distributed (company), flow into the reserves pool.

It's an interesting way to put it: "Profits are part of reserves", since things other than profits can flow into them. It's also true to say that "reserves are part of profits", in the sense that only part of the profits in any one year will flow into reserves.

It seems to me the point of the question is to show that you understand the meanings of the various terms involved. In other words, it's a "beginner-level" question. Anyone needing help with something as basic as that might do well to reconsider their aim in life. They might be better becoming an apprentice lion tamer with a travelling circus than to follow the bizarre notion that accountancy is their true calling.

Thank you all for taking the time to respond.

For the record I am not getting into accounts its a Facilities Managers course with a module on Financial management principals - and the qusestion is based on me giving a laymans (or FM's) understanding of the question to an 18yr old who has been confused by the answer she got fron the chief accountant.

So Ronald - you were very astute in your reading of the question,

I've already got the lion-tamers hat, and know how to claim for it on my tax return. Am I better off staying as an accountant or joining the circus and capitalising it as an asset?

Rgds

__ Richard Buttrey Grappenhall, Cheshire, UK __________________________

If you want a job with excitement, craving for adventure, work that brings you into contact with sheer danger, there is only one choice: Stick to accountancy. Lion taming is for wusses.