Economics
Economics
Economics
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Introduction :
The term balance sheet refers to a financial statement that reports a company's assets,
liabilities, and shareholder equity at a specific point in time. Balance sheets provide the
basis for computing rates of return for investors and evaluating a company's capital
structure.
Trading Account
Trading Account is prepared to know profitability of business due to buying and selling or
manufacturing and selling. It shows the profit from the main business; buying and selling
other than the business isn’t included in Trading Account.
Trading Account is the first stage in preparing a final account. It shows the gross profit
or gross loss during an accounting year.
The P&L statement is one of three financial statements every public company issues on a
quarterly and annual basis, along with the balance sheet and the cash flow statement. It is
often the most popular and common financial statement in a business plan as it shows how
much profit or loss was generated by a business.
Balance Sheet
The balance sheet is a snapshot of your business financials. It includes assets, and liabilities
and net worth. The “bottom line” of a balance sheet must always balance (i.e. assets =
liabilities + net worth). The individual elements of a balance sheet change from day to day
and reflect the activities of a business. Analyzing how the balance sheet changes over time
will reveal important financial information about a business.
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Financial Statement
Illustration
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Trial Balance
Debit Balances Amt. (Rs.) Credit Balances Amt. (Rs.)
Drawings 13,000 Capital 96,700
Income Tax 2,200 Sales 2,65,100
Machineries 20,000 Commission 2,400
Opening Stock (1.1.1987) 30,500 Provision for Doubtful Debts 2,500
Trading Account
Trading Account for the year ended 31st December,1987
Particulars Amt. (Rs.) Amt. (Rs.) Particulars Amt. (Rs.) Amt. (Rs.)
To Opening 30,500 By Sales 2,65,100
Stock
To Purchases 2,26,000 Less : Sales 1,200 2,63,900
Returns
Less : Purchase 5,750 2,20,250 By Closing Stock 32,300
Returns
To Wages 7,200
Add : 1,200 8,400
Outstanding
Wages
To Gross Profit 37,050
(Trans. To P&L
Account)
2,96,200 2,96,200
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Profit and Loss Account for the year ended 31st December, 1987
Particulars Amt. (Rs.) Amt. (Rs.) Particulars Amt. (Rs.) Amt. (Rs.)
To Rent & Taxes 7,500 By Gross Profit 37,050
Less : Paid in Advance 200 7,300 By Commission 2,400
To Salaries 8,000
Add : Outstanding 2,500 10,500
Salaries
To Miscellaneous 1,760
To Bad Debts 2,550
To Provision for 800
Doubtful Debts
(@20% on Rs. 40,000)
To Depreciation on:
Machineries (@ 10% on 2,000
Rs. 20,000)
Furniture (@15% on Rs. 900 2,900
6,000)
To Net Profit 13,640
(Transferred to Capital
A/c)
39,450 39,450
Balance Sheet
Balance Sheet as at 31st December, 1987
Liabilities Amt.(Rs.) Amt.(Rs.) Assets Amt. (Rs.) Amt. (Rs.)
Capital : Building 25,000
Opening Balance 96,700 Machineries 20,000
Add: Net Profit 13,640 Less : Depreciation 2,000 18,000
during the year @10%
1,10,340 Furniture 6,000
Less: Drawings 15,200 95,140 Less : Depreciation 900 5,100
@ 15%
Sundry Creditors 20,000 Closing Stock 32,300
Outstanding Sundry Debtors 40,000
Liabilities:
Wages 1,200 Less : Prov. For 3,300 36,700
Doubtful Debts
(Rs. 2,500 + 800)
Salaries 2,500 3,700 Taxes paid in 200
Advance
Cash in Hand 1,540
1,18,840 1,18,840
Analysis
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Trial Balance
The trial balance shows the general accounts of the company. The accounts
reflected on a trial balance are related to all major accounting items, including
assets, liabilities, equity, revenues, expenses, gains, and losses for the year ended
31.12.1987.
Trading Account
The trading account here shows the particulars debit to opening stock, Purchase, Wages and
the particulars credit by sales and closing stock. Then, we can get the gross profit amounting
to Rs. 37,050.
The above P&L account particulars shows the debit to Rent & Taxes, Salaries,
Miscellaneous, Bad Debts, Provision for Doubtful Debts, To Depreciation from
Machines (@10% on Rs. 20,000) and Furniture (@15% on Rs. 6,000) and the
credit by Gross Profit and by Commission. Then we can get the Net Profit
amounting to Rs. 13,640.
Balance Sheet
The above Balance Sheet shows the total liabilities and asset where the liabilities
are listed from Capital, Opening Balance, Sundry Creditors and Outstanding
Liabilities and the assets are listed by Building, Machineries, Furniture, Closing
Stock, Sundry Debtors, Taxes paid in Advance and Cash in Hand. Thus,
balancing the sheet at Rs. 1,18,840.
Conclusion
On a concluding note, a balance sheet is one of the financial statement
reports that shows the financial situation of an entity on a specific date.
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The balance sheet of an entity has a wealth of information that can be
used to assess financial stability and performance. It is a report sheet
that requires total assets to match total liabilities + shareholder capital.
Hence, the Calculation would be : Assets = Liability + Capital.
Assets - An asset is a resource that an entity owns and uses to generate
positive economic value.
Liabilities - This is a list of obligations owed to others by an entity. The
money contributed by the shareholders is referred to as capital or equity.