BALANCE SHEET Anjana Vivek www.bizkul.com [email_address] www. biZ kul .com
BALANCE SHEET <ul><li>Shows the  </li></ul><ul><li>Financial position or the state of affairs of the company  </li></ul><u...
CURRENT ASSETS <ul><li>Cash and other assets which will be converted into cash in the next year </li></ul><ul><li>Continuo...
CASH & MARKETABLE SECURITIES <ul><li>Cash refers to cash and bank balances, for example cash in current account </li></ul>...
MARKETABLE SECURITIES <ul><li>Marketable securities, i.e. current investments are to be shown at the lower of cost or fair...
ACCOUNTS RECEIVABLE /SUNDRY DEBTORS <ul><li>Balance in this account gives details of the customer balances outstanding </l...
ACCOUNTS RECEIVABLE /SUNDRY DEBTORS <ul><li>Quality of accounts receivables is carefully studied by analysts for example: ...
INVENTORY <ul><li>Items held for use in the manufacture or for sale </li></ul><ul><li>Amount of inventory held depends on ...
INVENTORY CATEGORIES <ul><li>Raw material </li></ul><ul><li>Work in progress </li></ul><ul><li>Finished goods </li></ul><u...
INVENTORY: IMPACT ON FINANCIALS  <ul><li>Impacts P&L account – reflected as an expense in cost of materials used </li></ul...
INVENTORY: VALUATION <ul><li>One may assume that costs are costs,  but there are costs and costs </li></ul><ul><li>FIFO </...
INVENTORY: VALUATION IMPACT <ul><li>EXAMPLE:  FIFO in times of inflation   </li></ul><ul><li>Balance sheet will reflect st...
INVENTORY: VALUATION IMPACT <ul><li>EXAMPLE:  LIFO in times of inflation   </li></ul><ul><li>Balance sheet will reflect st...
INVENTORY: VALUATION <ul><li>Goods are to be shown at the lower of cost or realisable value  </li></ul><ul><li>Closing sto...
PREPAID EXPENSES <ul><li>Some expenses may be paid in advance, such as rent, taxes, utility charges </li></ul><ul><li>Expe...
PROPERTY, PLANT AND EQUIPMENT/FIXED ASSETS <ul><li>Held to produce goods or provide services </li></ul><ul><li>Not sold in...
<ul><li>Proportion of fixed assets to total assets also depends on management strategy, for example decisions on renting v...
FIXED ASSETS: COST <ul><li>Cost includes purchase price and other direct costs, duties and taxes to bring asset to working...
OTHER ASSETS <ul><li>Long term investments </li></ul><ul><li>Intangible assets, such as  goodwill </li></ul><ul><li>Deferr...
LIABILITIES <ul><li>Obligations for </li></ul><ul><ul><li>Future payments to be made for goods / services received </li></...
CURRENT LIABILITIES <ul><li>Claims to be satisfied in the next one year </li></ul><ul><ul><li>Bills payable </li></ul></ul...
CURRENT LIABILITIES <ul><li>When current liabilities are reduced from current assets, the resultant amount is the  ‘Net wo...
ACCOUNTS PAYABLE / SUNDRY CREDITORS <ul><li>Obligation to pay to for credit purchase of goods or services </li></ul><ul><l...
NOTES PAYABLE / BILLS PAYABLE <ul><li>Short term obligations to pay for credit extended </li></ul><ul><li>Interest expense...
ACCRUED LIABILITIES AND PROVISIONS <ul><li>Expenses are recorded when incurred, irrespective of payment date </li></ul><ul...
DEFERRED TAXES <ul><li>Companies are permitted to use different methods of accounting for income and expense for  </li></u...
CONTINGENCIES <ul><li>A contingent liability is a potential liability, dependent on the outcome of an uncertain event </li...
COMMITMENTS <ul><li>Commitments are contractual obligations that will have a significant impact on the financials of the c...
DEBENTURES PAYABLE <ul><li>Long term liability </li></ul><ul><li>Loan – repayable with interest </li></ul><ul><li>Interest...
DEBENTURES PAYABLE <ul><li>May be secured debentures or unsecured </li></ul><ul><li>Secured by way of: </li></ul><ul><ul><...
DEBENTURES PAYABLE <ul><li>Kinds of debentures </li></ul><ul><li>Registered or unregistered </li></ul><ul><li>Term or seri...
DEBENTURES PAYABLE <ul><li>Debentures are rated by rating agencies </li></ul><ul><li>They can be issued at face value (par...
DEBENTURES PAYABLE <ul><li>Debentures can be converted to equity </li></ul><ul><ul><li>Unamortised discount or premium is ...
MORTGAGE <ul><li>Loan in which borrowing is secured by pledging specific immovable assets </li></ul><ul><ul><li>Land, buil...
LEASE <ul><li>An agreement whereby the lessor conveys to the lessee in return for a payment or series of payments the righ...
SHAREHOLDERS’ EQUITY <ul><li>Common stock or equity share capital </li></ul><ul><li>Preference share capital </li></ul><ul...
Upcoming SlideShare
Loading in …5
×

2 The Balance Sheet

731 views

Published on

Published in: Business, Technology
0 Comments
0 Likes
Statistics
Notes
  • Be the first to comment

  • Be the first to like this

No Downloads
Views
Total views
731
On SlideShare
0
From Embeds
0
Number of Embeds
4
Actions
Shares
0
Downloads
48
Comments
0
Likes
0
Embeds 0
No embeds

No notes for slide

2 The Balance Sheet

  1. 1. BALANCE SHEET Anjana Vivek www.bizkul.com [email_address] www. biZ kul .com
  2. 2. BALANCE SHEET <ul><li>Shows the </li></ul><ul><li>Financial position or the state of affairs of the company </li></ul><ul><li>At a point in time </li></ul><ul><li>ACCOUNTING EQUATION: </li></ul><ul><li>Assets = Liabilities + Owner’s equity </li></ul>www. biZ kul .com
  3. 3. CURRENT ASSETS <ul><li>Cash and other assets which will be converted into cash in the next year </li></ul><ul><li>Continuously circulated in the business </li></ul><ul><li>The cycle of conversion depends on the operating cycle of the business </li></ul><ul><li>Total current assets are equal to the gross working capital of the business </li></ul>www. biZ kul .com
  4. 4. CASH & MARKETABLE SECURITIES <ul><li>Cash refers to cash and bank balances, for example cash in current account </li></ul><ul><li>Marketable securities are investments which are readily realisable and mature in the short term, i.e. less than one year </li></ul>www. biZ kul .com
  5. 5. MARKETABLE SECURITIES <ul><li>Marketable securities, i.e. current investments are to be shown at the lower of cost or fair value </li></ul><ul><li>Interest and dividend are income, sometimes investment cost includes interest and dividend. Such amount related to pre acquisition period, is to be excluded from investment cost </li></ul>www. biZ kul .com
  6. 6. ACCOUNTS RECEIVABLE /SUNDRY DEBTORS <ul><li>Balance in this account gives details of the customer balances outstanding </li></ul><ul><li>Balance is net of doubtful debts, as per management estimate </li></ul>www. biZ kul .com
  7. 7. ACCOUNTS RECEIVABLE /SUNDRY DEBTORS <ul><li>Quality of accounts receivables is carefully studied by analysts for example: </li></ul><ul><ul><li>Number of days outstanding (ie less than one month, more than 6 months etc.) </li></ul></ul><ul><ul><li>Number of days sales it relates to </li></ul></ul><ul><ul><li>Doubtful debts provision </li></ul></ul>www. biZ kul .com
  8. 8. INVENTORY <ul><li>Items held for use in the manufacture or for sale </li></ul><ul><li>Amount of inventory held depends on </li></ul><ul><ul><li>nature of business i.e. manufacturing or service </li></ul></ul><ul><ul><li>management strategy i.e. just in time inventory management </li></ul></ul>www. biZ kul .com
  9. 9. INVENTORY CATEGORIES <ul><li>Raw material </li></ul><ul><li>Work in progress </li></ul><ul><li>Finished goods </li></ul><ul><li>Miscellaneous (stores/spares) </li></ul><ul><li>Goods in transit can be considered if legal ownership is with the company </li></ul>www. biZ kul .com
  10. 10. INVENTORY: IMPACT ON FINANCIALS <ul><li>Impacts P&L account – reflected as an expense in cost of materials used </li></ul><ul><li>Impacts balance sheet – reflected in the closing stock of goods </li></ul>www. biZ kul .com
  11. 11. INVENTORY: VALUATION <ul><li>One may assume that costs are costs, but there are costs and costs </li></ul><ul><li>FIFO </li></ul><ul><li>LIFO </li></ul><ul><li>Weighted average </li></ul><ul><li>Actual identifiable cost </li></ul>www. biZ kul .com
  12. 12. INVENTORY: VALUATION IMPACT <ul><li>EXAMPLE: FIFO in times of inflation </li></ul><ul><li>Balance sheet will reflect stock at high (latest) prices </li></ul><ul><li>P&L will reflect lower costs </li></ul><ul><li>If goods are priced at cost plus, prices will not reflect market rates of goods </li></ul>www. biZ kul .com
  13. 13. INVENTORY: VALUATION IMPACT <ul><li>EXAMPLE: LIFO in times of inflation </li></ul><ul><li>Balance sheet will reflect stock at low (old) prices </li></ul><ul><li>P&L will reflect higher costs </li></ul><ul><li>If goods are priced at cost plus, prices may not be competitive </li></ul>www. biZ kul .com
  14. 14. INVENTORY: VALUATION <ul><li>Goods are to be shown at the lower of cost or realisable value </li></ul><ul><li>Closing stock is physically counted </li></ul><ul><ul><li>May be 100% </li></ul></ul><ul><ul><li>May be partial (ABC concept) </li></ul></ul><ul><ul><li>May be periodic and in rotation to cover all items </li></ul></ul>www. biZ kul .com
  15. 15. PREPAID EXPENSES <ul><li>Some expenses may be paid in advance, such as rent, taxes, utility charges </li></ul><ul><li>Expenses related to the following period are included in this </li></ul><ul><li>They generally do not form a major component of the balance sheet </li></ul>www. biZ kul .com
  16. 16. PROPERTY, PLANT AND EQUIPMENT/FIXED ASSETS <ul><li>Held to produce goods or provide services </li></ul><ul><li>Not sold in the ordinary course of business </li></ul><ul><li>Proportion of fixed assets to total assets depends on nature of business, i.e. whether a manufacturing or service company </li></ul>www. biZ kul .com
  17. 17. <ul><li>Proportion of fixed assets to total assets also depends on management strategy, for example decisions on renting vs. buying, outsourcing vs. producing in-house </li></ul><ul><li>Management decisions on depreciation methods also impact net value in balance sheet </li></ul>PROPERTY, PLANT AND EQUIPMENT/FIXED ASSETS www. biZ kul .com
  18. 18. FIXED ASSETS: COST <ul><li>Cost includes purchase price and other direct costs, duties and taxes to bring asset to working condition for intended use </li></ul><ul><li>Basket purchase: price can be allocated to different assets </li></ul><ul><li>Hire purchase assets: interest component cannot form a part of asset cost </li></ul>www. biZ kul .com
  19. 19. OTHER ASSETS <ul><li>Long term investments </li></ul><ul><li>Intangible assets, such as goodwill </li></ul><ul><li>Deferred expenses </li></ul><ul><li>The impact of these assets on the balance sheet is something which analysts review carefully </li></ul>www. biZ kul .com
  20. 20. LIABILITIES <ul><li>Obligations for </li></ul><ul><ul><li>Future payments to be made for goods / services received </li></ul></ul><ul><ul><li>Goods to be supplied/service rendered against advance received </li></ul></ul><ul><li>Classified into </li></ul><ul><ul><li>Current liabilities </li></ul></ul><ul><ul><li>Long term liabilities </li></ul></ul><ul><li>May be secured or unsecured </li></ul>www. biZ kul .com
  21. 21. CURRENT LIABILITIES <ul><li>Claims to be satisfied in the next one year </li></ul><ul><ul><li>Bills payable </li></ul></ul><ul><ul><li>Taxes and duties payable </li></ul></ul><ul><ul><li>Current portion of long term debt </li></ul></ul><ul><ul><li>Interest accrued but not due </li></ul></ul>www. biZ kul .com
  22. 22. CURRENT LIABILITIES <ul><li>When current liabilities are reduced from current assets, the resultant amount is the ‘Net working capital’ </li></ul>www. biZ kul .com
  23. 23. ACCOUNTS PAYABLE / SUNDRY CREDITORS <ul><li>Obligation to pay to for credit purchase of goods or services </li></ul><ul><li>This is an ongoing obligation and forms a part of the current liabilities </li></ul><ul><li>This is analysed keeping in view the sales and purchases </li></ul>www. biZ kul .com
  24. 24. NOTES PAYABLE / BILLS PAYABLE <ul><li>Short term obligations to pay for credit extended </li></ul><ul><li>Interest expense is to be shown separately </li></ul>www. biZ kul .com
  25. 25. ACCRUED LIABILITIES AND PROVISIONS <ul><li>Expenses are recorded when incurred, irrespective of payment date </li></ul><ul><li>Provisions are estimated liabilities, where the liability is certain but amount not definite for example pension liabilities, product warranties. A reasonable estimate is to be made </li></ul>www. biZ kul .com
  26. 26. DEFERRED TAXES <ul><li>Companies are permitted to use different methods of accounting for income and expense for </li></ul><ul><ul><li>financial reporting and for </li></ul></ul><ul><ul><li>tax calculation </li></ul></ul><ul><li>As a result of there may be a temporary differences in calculation of tax payable and this temporary difference is accounted as deferred tax </li></ul>www. biZ kul .com
  27. 27. CONTINGENCIES <ul><li>A contingent liability is a potential liability, dependent on the outcome of an uncertain event </li></ul><ul><li>If this can be reasonably estimated - for example warranties - this must be disclosed in the accounts </li></ul><ul><li>If this cannot be reasonably estimated, must be disclosed in notes to accounts </li></ul>www. biZ kul .com
  28. 28. COMMITMENTS <ul><li>Commitments are contractual obligations that will have a significant impact on the financials of the company in the future </li></ul><ul><li>These should be disclosed in the notes to accounts </li></ul>www. biZ kul .com
  29. 29. DEBENTURES PAYABLE <ul><li>Long term liability </li></ul><ul><li>Loan – repayable with interest </li></ul><ul><li>Interest is deductible as an expense, hence effective cost of borrowing is lower than interest rate </li></ul>www. biZ kul .com
  30. 30. DEBENTURES PAYABLE <ul><li>May be secured debentures or unsecured </li></ul><ul><li>Secured by way of: </li></ul><ul><ul><li>Mortgage – immovable assets – land, building, machinery </li></ul></ul><ul><ul><li>Pledge – Physical possession given to lender </li></ul></ul><ul><ul><li>Hypothecation – borrower can use assets like vehicles </li></ul></ul>www. biZ kul .com
  31. 31. DEBENTURES PAYABLE <ul><li>Kinds of debentures </li></ul><ul><li>Registered or unregistered </li></ul><ul><li>Term or serial </li></ul><ul><li>Convertible </li></ul><ul><li>Option for calling </li></ul><ul><li>Deep discount </li></ul>www. biZ kul .com
  32. 32. DEBENTURES PAYABLE <ul><li>Debentures are rated by rating agencies </li></ul><ul><li>They can be issued at face value (par value) or above or below this value; i.e. at discount or premium </li></ul><ul><li>Debenture interest has to be provided on accrual basis </li></ul><ul><li>Debenture issue expenses may be amortised over life of the same </li></ul>www. biZ kul .com
  33. 33. DEBENTURES PAYABLE <ul><li>Debentures can be converted to equity </li></ul><ul><ul><li>Unamortised discount or premium is adjusted to shareholder’s equity account </li></ul></ul><ul><li>Debenture redemption fund is created by periodically investing surplus in income generating investments </li></ul>www. biZ kul .com
  34. 34. MORTGAGE <ul><li>Loan in which borrowing is secured by pledging specific immovable assets </li></ul><ul><ul><li>Land, building, plant & machinery </li></ul></ul><ul><li>May be conditional or equitable mortgage </li></ul><ul><li>May be repaid in equal installments (EMI) or not </li></ul>www. biZ kul .com
  35. 35. LEASE <ul><li>An agreement whereby the lessor conveys to the lessee in return for a payment or series of payments the right to use an asset for an agreed period of time </li></ul><ul><li>Finance lease transfers substantially all the risks and rewards incidental to ownership of asset (Asset and liability to be recognised) </li></ul><ul><li>Operating lease is other than a finance lease (Expense in P&L account) </li></ul>www. biZ kul .com
  36. 36. SHAREHOLDERS’ EQUITY <ul><li>Common stock or equity share capital </li></ul><ul><li>Preference share capital </li></ul><ul><li>Reserves and surplus including retained earnings </li></ul>www. biZ kul .com

×