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The Concept of a Balance Sheet

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The Concept of a Balance Sheet

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The Concept of a Balance Sheet

  1. 1. The concept of a balance sheetExercise1 What I HAVE What I OWE
  2. 2. Exercise1 What I HAVE What I OWE House Car Furniture Equipment Savings “Petty” Cash Mortgage Car loan Equipment loan Invoices Overdraft The concept of a balance sheet
  3. 3. Exercise1 What I HAVE What I OWE House 100 Car 10 Furniture 30 Equipment 20 Savings 10 Petty Cash 5 Adding up 175 Mortgage 65 Car loan 5 Equipment loan 10 Invoices 5 Overdraft 10 Adding up 95 The concept of a balance sheet
  4. 4. Exercise1 What I HAVE What I OWE House 100 Car 10 Furniture 30 Equipment 20 Savings 10 Petty Cash 5 Total 175 Net worth 80 Mortgage 65 Car loan 5 Equipment loan 10 Invoices 5 Overdraft 10 Total 175 The concept of a balance sheet
  5. 5. Exercise1 The concept of a balance sheet Assets =Liabilities +Net Worth (Equity) What about income and expenses?
  6. 6. Revenues (Income) 1000 - Mortgage loan repayment 300 - Car expenses 50 - Heating, electricity,… 100 - Various expenses 100 - Taxes and Soc. Sec. 400 Revenuesandexpenses Net income / Savings 50 Where did the money go?
  7. 7. The charges to the P & L Net Result TheP&LAccount Other operational income Gross margin Added Value Gross ops profit Profit before taxes Goods & services Personnel -expense Other ops expenses Amortisa tion EBIT Financial expenses Taxes Result of Operations Financial Income & exceptional Gross Profit Other income
  8. 8. P & L N-1 EURO N Turnover (1) Purchased goods - Inventory = Cost of goods sold (2) Gross margin (3)=(1)-(2) + Other business related income = Income from operations (4) - Goods and services (5) = Added Value (6)=(4)-(5) - Personnel expense - Other operational expenses = Gross operating income + Financial revenues + Exceptional results = Gross total revenue (EBITDA) - Amort., provisions, depreciations = EBIT - Financial expenses - Taxes = NET PROFIT ExceptionalExceptional OperationsOperations InvestmentsInvestments FinancingFinancing Key elements of a P & LTheP&LAccount
  9. 9. ASSETS LIABILITIES BALANCE SHEET INCOME statement CHARGES REVENUES
  10. 10. The balance sheet of a bank ASSETS LIABILITIES Differentbalancesheets What the bank HAS What the bank OWES
  11. 11. Example : The opening balance sheet of a company Assets Liabilities Short term asset Net worth The methodology of double entry accounting Doubleentry
  12. 12. Double entry Liability Increases = DEBIT Asset Doubleentry
  13. 13. Double entry Assets LIABILITY Increases CREDIT Doubleentry
  14. 14. Double entry accounting Cash Net Worth ASSETS LIABILITIES Doubleentry
  15. 15. Double entry accounting Income statement (P&L account) Doubleentry
  16. 16. The double entry accountingTOREMEMBER Asset accounts D Increase Decrease Liability accounts Decrease Increase Charges Revenus P & L Account
  17. 17. Barca P & L account (Income statement) Revenue 240,000 Cost of materials -80,000 Salaries -48,000 Other operating cost -22,000 EBITDA 90,000 Depreciation -6,250 Op. income EBIT 83,750 Tax -27,638 Net income before div. 56,113
  18. 18. Barca Cash flow Payments from clients 156,000 Cost of goods sold -77,000 Salaries -48,000 Other op. expenses -22,000 Cash flow from ops 9,000 Cash flow for investments -25,000 Available cash flow disponible -16,000 Capital increase 50,000 Dividends -2,000 Cash flow from financing 48,000 Cash flow 32,000
  19. 19. Barca Balance Fixed assets 18,750 Inventory 15,000 Receivables 84,000 Cash 32,000 Total assets 140,750 Capital 50,000 Ret. Earn. 50,113 Net worth 100,113 Tax due 27,638 Payables 18,000 Div. due 4,000 Liabilities 49,638 N.W. & Liabilities towards third parties 149,750
  20. 20. Whathappened? What happened? EURO Date 01/01/N-1 31/12/N-1 01/01/N 31/12/N ASSETS Fixed Inventory Receivable Cash 399 1.516 890 975 10,6 % 40,1 % 23,5 % 25,8 % 397 1.364 1.136 561 13,4 % 46,1 % 38,4 % 2,1 % TOTAL ASSETS 3.780 100 % 3,458 100 % LIABILITIES Net Worth LT Debt Suppliers Bank debt 592 660 2.528 0 15,7 % 17,5 % 66,9 % 0 % 673 441 2,166 178 22,8 % 14,9 % 56,3 % 6,0 % TOTAL LIABILITIES 3.780 100 % 3,458 100 %

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