Principles of Accounting chapter guide

Limited company accounts: what to study first

Company accounts look like sole trader accounts until the equity section stops making sense.

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A limited company is a business that is a separate legal person from its owners. Its accounts follow the same double entry you already know, but the ownership section now shows share capital, reserves and dividends.

This chapter sits in the wider SPM Accounting guide. It builds on the financial statements of a sole trader and on double entry and ledgers.

What does the limited companies chapter cover?

It covers four skills. You learn to tell share capital, reserves and liabilities apart, to read a company’s statements, to record the capital transactions your syllabus includes, and to explain how a company differs from other forms of business.

Each skill has its own lesson, and a practice set closes the chapter. Check the current syllabus document on the BPK website or with your teacher for the exact scope your year follows.

One example to orient you

A company, Sri Damai Berhad, has RM100 000 of ordinary shares, RM20 000 of retained profits and a RM30 000 bank loan. The shareholders own RM120 000 of the business. The bank is owed RM30 000.

The bank is an outsider, so its loan is a liability. The shareholders are insiders, so their money and the profits kept for them sit in equity. That one split explains most of the company statement of financial position.

In what order should I study the lessons?

Follow the order below, because each lesson uses the one before it.

Distinguishing share capital, reserves and liabilities sorts items into the right section.
Reading company financial statements follows profit from revenue to retained profits.
Recording permitted capital transactions within scope teaches the journal entries.
Explaining ownership and reporting differences prepares you for short-answer questions.
The chapter practice set tests all four.

Who should start where?

If your worry is the layout, start with lesson 2. If you keep putting items in the wrong section, start with lesson 1. If the journal entries are the weak spot, go straight to lesson 3 and read lesson 1 afterwards.

Students who plan to go through partnerships first can read the partnerships chapter, since both chapters share the idea of dividing profit among owners.

For help from a teacher on this chapter, see online one-to-one Accounting tuition or the one-hour trial class (from RM50).

Lesson

Practice

PracticeLimited companies practice with answersYou have read the lessons and now need questions that show what still does not stick.

Common questions

Do I need to finish sole trader accounts before limited companies?

Yes, at least the statement of profit or loss and the statement of financial position. Company accounts reuse both and change only the ownership section and a few new lines such as tax and dividends. If those two statements are shaky, repair them first.

What is the biggest change from a sole trader to a company?

The owner's capital and drawings are replaced by share capital, reserves and dividends. The business is also a separate legal person, so shareholders are not the same thing as the company. Most marks lost in this chapter come from mixing up these two ideas.

Should I memorise the layout of company statements?

Learn the order of the items and the reason for each line, then practise laying it out from a list. Memorising a single layout fails when the question lists items in a different order.

Keep going

If the equity section of a company statement still feels like a different subject, one-to-one Accounting lessons let a teacher rebuild it from the sole trader accounts you already know.

Online one-to-one lessons for your child with an experienced teacher.
Your first class is a one-hour trial, from RM50. The fee is agreed before you book.
Happy with the teacher? Continue with lessons of about 1.5 hours. If not, ask for another teacher.

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