The document provides an overview of key concepts in financial accounting and financial statements. It discusses: 1) The accounting equation that assets must equal liabilities plus owners' equity. 2) Components of the balance sheet such as assets (current and non-current), liabilities (current and non-current), and owners' equity. 3) Types of assets like fixed assets, investments, and current assets. 4) Types of liabilities including debt, current liabilities, and provisions. 5) How the balance sheet and owners' equity change based on business transactions and performance.

1. Financial AccountingFinancial Accounting
Prof Padmini SrinivasanProf Padmini Srinivasan
You cant manage what you cant measure

2. Recap of Class 1Recap of Class 1

3. Identification
Select economic events
Business transactions
Recording
Record, classify
and summarize
Accounting
Reports
SOFTBYTE
Annual Report
Accounting
reports
Analyze and interpret
for users
Communication
ACCOUNTING SYSTEM
FILT
ERS
Audit
Input Process Output
Monetary

4. Financial Statements
• Accounting Reports
• The Statement of Financial position
• The statement of Financial
performance
• The Cash Flow statement

5. Balance Sheet

6. Accounting Concepts
• The Entity Concept
• Going Concern Concept
• Money Measurement

7. The Accounting Equation
Assets
Owners’
Equity
Liabilities
Assets = Liabilities + Owners’ Equity

8. Understanding FinancialUnderstanding Financial
statementsstatements

9. Balance Sheet
EQUITY AND LIABILITIES
1)Shareholders’ Funds
2) Non-current liabilities
3) Current liabilities
ASSETS
1) Non-current assets
(2) Current assets
Form as per Schedule VI of Companies Act.

10. Balance Sheet
EQUITY AND LIABILITIES
Shareholders’ Funds
(a) Share capital
(b) Reserves and surplus
(2) Share Application money
pending allotment
(3) Non-current liabilities
(a) long-term borrowings
(b) Deferred tax liabilities
(c) Other long term
liabilities
(d) long-term provisions
(4) Current liabilities
(a) Short term borrowings
(b) Trade payables
(c) Other current liabilities
(d) Short-term provisions
ASSETS
-Non-current assets
(a) Fixed Assets
 i. Tangible assets
 ii) Intangible assets
Iii) Capital Work in progress
(b) Non-current Investments
(c) Deferred tax assets (net)
(d) Long-term Loan and Advances
(e) Other Non-current assets
(2) Current assets
(a) Current investments
(b) Inventories
(c) Trade receivables
(d) Cash and cash equivalents
(e) Short-term loans and advances
(f) Other current assets

11. ASSETS
Assets are resources owned /(controlled) by
a business.
They are capable of providing future
benefits or cash flows
They must arise out of a past identifiable
event and are objectively measurable
They are usually recorded at cost

12. ASSETS
They arise because of the investment
decisions of the firm
BROADLY CLASSIFIED AS:
Non current Assets (other than current assets (see
definition of current, later)
(a) Fixed Assets
(b) Non-current Investments
(c) Deferred tax assets (net)
(d) Long-term Loan and Advances
(e) Other Non-current assets

13. FIXED ASSETS
• General Characteristics
• Meant to be used for producing goods or
services, renting out or for administrative use
• Useful life of more than 1 year
• They are not held for sale in the ordinary
course of business, Building, computer etc
• Eg: Machinery
• Disclosed as:
• Gross Block
• Less: Accumulated depreciation
• Net Block
Materiality
Concept

14. INVESTMENTS
• Are assets held for “Accretion in
wealth” through distribution or for
capital appreciation
• Eg. Investment in Shares and other
securities of companies etc
• Classified as:
• Long term/Current (based on holding 12
months
• Current Investments with current Assets
• Others under Non current asset
• Quoted or unquoted (For example say in any
stock exchange )

15. Current Assets
• Current assets are assets that form part
of the circulating capital (operating cycle)
and take interrelated form, it is expected
to be realized in, or is intended for sale or
consumption
• It also includes assets that are expected
to be converted into cash in next 12
months from the Balance sheet date
• Eg:- Inventory ( Raw Material Stock, Work in
Progress, Finished Goods)
• Receivables (Sundry Debtors and Others)
• Cash

16. LIABILITIES

17. LIABILITIES
Liabilities are claims against assets.
They are present obligations.
Generally discharging the liability will
result in the decline of the assets
Broadly Classified into:
Debt (Borrowings)
 Current Liabilities
 An entity can fall under all three categories too

18. OWNERS EQUITY
The ownership claim on total assets is
known as Shareholder’s equity.
Divided into units called as a share, with a
face value.
The share holders equity in a company’s
balance sheet consists of:
• 1 Paid-UP (contributed) capital
• 2 Retained earnings (Reserves and
Surplus)

19. Shareholders Equity /
Share Capital
Amount contributed by owners
towards the capital of the firm
They are residual claims on the total
assets of the company.
They are divided into units called
shares
Types: Equity share
• Preference shares

20. Retained Earnings/
Reserves and Surplus
• Reserves and Surplus or Retained
Earnings : Is the Net Profit or Loss
from the business operations which is
not distributed to the Shareholders (
retained in the business)

21. •INCREASE DECREASE
Investments
by
shareholders
Revenues
Owners’
Equity
Dividends to
shareholders
Expenses
INCREASES AND DECREASES IN
Owners Equity

22. Non current Liabilities
• Loans: Amounts borrowed by the
firm to be repaid as per agreed
terms and are usually interest
bearing
• Non current Provisions and other
non current liabilities

23. Current Liabilities and
Provisions
• Current Liabilities
• Amounts due on account of purchase
goods/services and is expected to
be settled in the company’s normal
operating cycle;
• c. it is due to be settled within
twelve months after the reporting
date;

24. Current Liabilities and
Provisions
• Provisions
• Are also liabilities payable But the
exact amount cannot be quantified i.e
they require estimation
• Eg: Provision for Doubtful debts etc

25. Question ?
• All performance (operations) changes
the Balance sheet or the financial
position of the company
• Can we say that all changes in the
balance sheet is on account of
performance ??