GAAP:

Generally accepted accounting principles, commonly abbreviated as GAAP, are accounting rules used to prepare, present, and report financial statements for a wide variety of entities, including publicly traded and privately-held companies, non-profit organizations, and governments. Generally GAAP includes local applicable Accounting Framework, related accounting law, rules and Accounting Standard. Currently, the Financial Accounting Standards Board (FASB) is the highest authority in establishing generally accepted accounting principles for public and private companies, as well as non-profit entities. For local and state governments, GAAP is determined by the Governmental Accounting Standards Board (GASB), which operates under a set of assumptions, principles, and constraints, different from those of standard private-sector GAAP.

Entity Concept:
It assumes that the business is separate from its owners or other businesses. And Revenue and expense should be kept separate from personal expenses. Going Concern Concept: It assumes that the business will be in operation indefinitely. This validates the methods of asset capitalization, depreciation, and amortization. Only when liquidation is certain this assumption is not applicable. Cost Concept: It requires companies to account and report based on acquisition costs rather than fair market value for most assets and liabilities. This principle provides information that is reliable, but not very relevant. Dual Aspect Concept: This states that there are two aspects of accounting, one represented by the assets of the business and the other by the claims against them. The concept states that these two aspect are always equal to each other. In other words, this is the alternate form of the accounting equation:

Assets=Liabilities+Capital

Sole proprietorship Partnership Co-operatives Private Limited Public limited

The case here discusses partnership and it can be described as:
A legal contract entered into by two or more persons in which each agrees to furnish a part of the capital and labor for a business enterprise, and by which each shares a fixed proportion of profits and losses. A relationship between individuals or groups that is characterized by mutual cooperation and responsibility, as for the achievement of a specified goal

Sole Proprietorship Mr. Smith is the Owner of Music Mart Inc. Trading activities done till January 4 Assets=Liabilities + Owner`s funds

The equation should always be preserved.

All transaction are assumed to be done in January only.

Assets
A/C Prepaid Recivables Expenses

Liabilities+Owner's Equity
A/C Payables Notes Payables Retained Earnings

Particulars

Cash

Inventory

Land

Capital

Opening Balance Credit Purchase Cash Sales

33250

4500

12500

250

25000

5000

5000

2300

-1500

800

Credit SalesFire Insurance

-1700

2620

920

-1224

1224

Land
Sub Total

-6000

24000

18000

28326

6300

2620

1224

24000

23000

12500

250

26720

Assets
A/C Prepaid Recivables Expenses

Liabilities+Owner's Equity
A/C Payables Notes Payables Retained Earnings

Particulars

Cash

Inventory

Land

Capital

Sub Total

28326

6300

2620

1224

24000

23000

12500

250

26720

Land Sold
Withdraw Withdraw Notes Paid Cash Sales

3000
-1000 -6000 1310 25636

-750 -850 4700

2620

1224

-12000
12000

-9000
14000

-6000 6500

250

-1000 -750 460 25430

Total

Grand Total

46180

46180

Balance sheet of Music Mart as on January 4

Assets
Current Assets
Cash Inventory A/C Receivables Prepaid Expenses 25636 4700 2620 1224 34180

Liabilities
Current Liabilities
A/C Payables Notes Payable 14000 6500 20500

Non-Current Assets
Land 12000

Non-Current Liabilities
-

Owner's Equity
Capital Retained Earnings 25430 250 25680

Total

46180

Total

46180