FINANCIAL STATEMENTS AND BALANCE SHEET
FINANCIAL STATEMENTS AND BALANCE SHEET, The financial statements and balance sheet are used along with other important, financial statements such as the income statement and the statement of cash flows in conducting fundamental analysis or calculating financial ratios.
Key Takeaways of Balance sheet
- A balance sheet is a financial statement that reports a company’s assets, liabilities, and shareholders’ equity.
- The balance sheet is one of three (statement of income and statement of cash flows being the other two) the main financial statements used to evaluate a business.
- The balance sheet is a snapshot, representing the state of a company’s finances (what it owns and owes) as of the date of publication.
- Financial analysts use the balance sheet, in combination with other financial statements, to calculate financial ratios.
All of the company’s revenue that exceeds its expenses will go to shareholders’ equity account. These revenues will be balanced in favor of assets appearing in the form of cash, investment, inventory, or some other asset.
Assets, liabilities, and shareholders’ equity each have multiple small accounts that break the specifics of the company’s finances. Such accounts varying by industry may have different and similar effects due to the different nature of business. Broadly, however, there are some common components that investors are likely to come across.
What’s on the Financial Statements and balance sheet?
A balance sheet is a snapshot that represents the state of finance of one company at a time. By itself, it may not give a sense of the trends that are in play for the long term. For this reason, the balance sheet should be compared to the previous period. This should be compared to other businesses in the same industry since different industries have unique approaches to financing.
Several ratios can be extracted from the balance sheet, which gives investors an idea of how healthy the company is. These include the debt-to-equity ratio and acid-test ratio along with many others. Income flow and cash flow details also provide valuable references for assessing a company’s finances, as is a note or addenda in an income report that can be returned on the balance sheet.
SAMPLE OF FINANCIAL STATEMENTS AND BALANCE SHEET
|M/S ABC COMPANY|
|TRADING, PROFIT & LOSS A/C FOR THE YR. 2017- 18|
|To, Opening stocks||487,954.00||,, By sale of food grains||3,285,437.00|
|,, Purchase of food grains||3,437,954.00||,, Closing Stocks||1,174,354.00|
|,, Freight & transportation||32,854.00|
|,, Gross Profit||501,029.00|
|To, Rent of shop||12,000.00||By gross profit||501,029.00|
|,, Salary & Wages||61,896.00|
|,, Electricity & generator||12,525.00|
|,, Repair & Maintenance||1,117.00|
|,, Stationary & Printings||2,505.00|
|,, Telephone & Postage||5,010.00|
|,, Bank Charges||2,100.00|
|,, Travelling & Conveyance||11,774.00|
|,, Misc. Expenses||8,066.00|
|,, Net profit trans to capital A/C||335,443.00|
|M/S ABC COMPANY|
|BALANCE SHEET AS AT 31ST MARCH – 2018|
|Capital A/C.||fixed assets|
|Opening Balance||547,457.00||Fixed Assets||44,712.00|
|Add. Profit in the yr.||335,443.00||Less Depreciation||4,471.00||40,241.00|
|Less Drawal||140,000.00||742,900.00||Closing Stocks||1,174,354.00|
|Cash & Bank Balance||20,135.00||1,337,281.00|
|Provision for Loans|
|C. C. Limit||500,000.00|
|Stationary & Printings||88.00|
Fixed and Current Assets
Within the asset segment, accounts are listed from top to bottom in the order of their liquidity – that is, the ease with which they can be converted into cash. They are divided into current assets, which can be converted into cash in a year or less; And non-current or long-term assets, which cannot.
Here is the general order of accounts in current assets
- Cash and cash equivalents are the most liquid assets and may include treasury bills and short-term certificates of deposit, as well as hard currency.
- The equity and debt securities of the liquid market are marketable securities.
- Accounts receivable refers to the money that the company owes to customers, including allowance for doubtful accounts because a certain proportion of customers cannot be expected to pay.
- Goods are goods available for sale, valued at a lower level of cost or market value.
- Prepaid expenses represent the value that has already been paid, such as insurance, advertising contracts, or rent.
Long-term assets include the following:
- Are long-term investment securities that may or may not be liquid in the following year.
- Immovable assets include land, machinery, equipment, buildings, and other durable, usually capital-intensive assets.
- In general, intangible assets are listed on the balance sheet only if they are acquired, rather than developed in-house. Their value can thus be understood as wildly – not by including globally recognized logos, for example – or just as wildly overstated.
Fixed and Current Liabilities
Liabilities are the money that a company gives to outside parties, with bills requiring suppliers to pay interest on bonds that have been issued to creditors for rent, utilities, and salaries. Current liabilities are those that are due within a year and are listed in the order of their due date. Long-term liabilities occur at any point after one year.
Current liabilities accounts may include:
- Current portion of long-term debt
- Bank Indebtedness
- Interest payable
- Wages payable
- Customer prepayment
- Dividends payable to others
- Premium earned and unearned
Long-term liabilities may include:
- Long-term debt: interest and principal on bonds issued.
- Pension Fund Liability:
The company requires money to be paid into the retirement accounts of its employees.
- Deferred tax liability:
Taxes that have been earned but will not be paid for another year (except for time, this figure covers the difference between the requirements for financial reporting and the way the tax is assessed. Goes, such as depreciation calculation.)
Some liabilities do not appear on the balance sheet meaning that they are considered separate from the balance sheet.
Shareholders’ equity is the money that a business’s owners owe, meaning its shareholders. It is also known as “net asset” because it is equal to the total assets of a company, which subtracts its liabilities, that is, it is a loan to non-shareholders.
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Retired earnings are net earnings that the company either reinvests in the business or uses to pay off debt; The remainder is distributed to shareholders in the form of dividends.
Additional paid-up capital or capital surplus represents the amount that shareholders have invested in more than “common stock” or “preferred stock” accounts, which are based on par value rather than market value. Shareholders’ equity is not directly related to the market capitalization of the company: the latter is based on the current price of the stock, while the paid-in capital is the sum of equity that has been purchased at any price.
Example of a balance sheet limits
The balance sheet is an invaluable piece of information for investors and analysts; however, it has some drawbacks. Since this is just a snapshot in time, it can only use the difference between this point and another single point in time in the past. Because it is stable, many financial ratios are drawing on data included in the balance sheet and more dynamic income statements and cash flow statements to portray a fuller picture of what is happening with the company’s business.
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Different accounting systems and methods of dealing with depreciation and inventions will also change the data posted on a balance sheet. Managers have some extra ability in number games for looking more favorable.
‘ Note: the footnotes of the balance sheet to determine which systems are being used in their accounting and to watch out for red flags.