Beruflich Dokumente
Kultur Dokumente
Education Valley
Education Valley
Income Statement
Income Statement is a financial
statement which shows the profit
earned by a firm in a particular year.
In income statement we have
revenue and expenses. Revenue by
definition means amount earned in a
particular accounting year as a result
of sales. Income from sales of fixed
assets is also recorded in the book as
revenue.
Income Statement
Earned refers to amount that is due
hence we consider the total amount
we deem pertains to an accounting
period received or receivable.
Expenses refer to the amount of
money paid or payables for
services/goods which goes into
operating and financing a business
Education Valley
Income Statement
1.
2.
Education Valley
Income
Statement
Education Valley
Income
Statement
Education Valley
Income
Statement
Balance Sheet
1. Balance Sheet is a financial statement
which sums up the financial benefits and
obligations of the company as on a
particular date.
2. Future benefits which can be measured in
terms of money are known as assets. In
other words, if Tata Steel has an asset
worth Rs. Xxxxxxx in its balance sheet as
on 31st March 2011 it means Tata Steel
expects a monetary benefit of Rs.
Xxxxxxxxx from the assets.
Balance Sheet
1.
2.
3.
4.
Education Valley
12
Balance
Sheet
Assets
Current Assets
Cash
Accounts receivable
Inventory
Prepaid expenses
Short-term investments
Total current assets
Fixed (Long-Term) Assets
Long-term investments
Property, plant, and equipment
Intangible assets
Goodwill
Patents
Total fixed assets
Education Valley
13
Assets
1. Once upon a time a businessman ran a bottle manufacturing
plant. He was told by his accountant that anything which had
a future benefit on the date on which the balance sheet was
prepared was called assets .
2. He had a plant located in Delhi. He had some machinery
which could manufacture the bottles. He had an office where
his white collared officers sat.
3. He clubbed them together and he decided to call it Property
Plant and Equipment (PP&E).
4. He also pointed that these assets were tangible in nature.
5. The businessman then made some long term investments on
behalf of the company he was running.
6. Last year, the businessman had bought his brothers
business for Rs. 500000 while his brothers accounting books
showed the value as Rs. 300000. He assumed that he had to
pay the extra Rs. 200000 because of the reputation his
brothers firm enjoyed. He called it goodwill.
Assets
Education Valley
15
Assets
16
Assets
Education Valley
17
Liabilities
Liabilities and Owner's Equity
Current Liabilities
Accounts payable
Short-term loans
Accrued salaries and wages
Current portion of long-term debt
Total current liabilities
Long-Term Liabilities
Long-term debt
Deferred income tax
Other
Total long-term liabilities
Owner's Equity
Owner's investment
Retained earnings
Total owner's equity
Total Liabilities and Owner's Equity
Liabilities
Education Valley
19
He also used his own funds called Owners Funds. On the other hand the
shareholder also had an option Owners Fund comprised shareholders equity
and reserves.
Retained Earning was a part of the profits he transferred to reserves. The part
of profit that he gave to the shareholders was known as dividends.
He also had obligations which had a life of less than one year. He called them
current liability
To attract suppliers, in a highly competitive environment he often had to
provide credit facilities to his suppliers which he called accounts payable or
creditors.
There were other short term liabilities which included current portion of long
term debt and unpaid expenses for the given period.
Education Valley
20
22
23
Education Valley
24
Education Valley
25
Education Valley
26
Education Valley
27
Education Valley
29
He had sold a car and some securities for cash which lead
to increase in cash.
At the end of the period he realized he had a negative
figure and he got perturbed. However, he realized any
growing firm should always spend more on buying assets
than by selling the same.
Now he wanted to find the cash flow from financing
activities. He was told that financing activities refers to the
process of funding the investments and operation of a
business. Following are the sources he had utilized for
long term financing of operations
Education Valley
30
Education Valley
31