Balance Sheet PDF

03-10-11
Introduction
Financial Statements and Accounting

Principles
Executives are interested in knowing their financial

health.
Such financial statements usually refereed as Balance
Sheet
Balance sheet has two sides
Liabilities payable
Assets owned
The total of these two sides is always equal.

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Money matters
Cash inflows-Receipts; Cash out flows-payments; sales
generates revenue/income
ramesh.anbanandam@gmail.com
Balance Sheet
Balance Sheet
Let us assume that a Pvt Ltd(with name as Royal

Industries) by group of 10 friends (each contributing
Rs.3,000/-) on 1st June 2011.
Balance Sheet of Royal Industries as at June 1,2011
Liabilities
Amount (Rs)
Assets
Amount (Rs)
Capital
30,00,000
Cash
30,00,000
30,00,000
30,00,000
Let us assume further that out of Rs. 30 lakh,

Rs.20lakh is deposited in a bank on 2nd June
2011.
Liabilities
Amount (Rs)
Assets
Capital
30,00,000
Cash
10,00,000
Bank Balance
20,00,000
Principle of separate entity - not from point of the view

of owners
Amount (Rs)
30,00,000
30,00,000
Balance Sheet
Balance Sheet
Assume further the company purchases goods

worth Rs. 6 lakh against cash payment on 4th June
2011.
During 5-8 June 2011, Royal Industries has cash

sales of Rs. 5 Lakh (for goods costing Rs.4 Lakh)
Liabilities
Amount (Rs)
Assets
Amount (Rs)
Liabilities
Amount (Rs)
Assets
Amount (Rs)
Capital
30,00,000
Cash
04,00,000
Capital
30,00,000
Cash
09,00,000
Bank Balance
20,00,000
Profits
01,00,000
Bank Balance
20,00,000
Stock (FG)
06,00,000
Stock (FG)
02,00,000
30,00,000
30,00,000
Change is in composition of assets only.

Principle of Duality/Double Entry
31,00,000
31,00,000
Profits are payable to owners, hence, liabilities of

the company.
03-10-11
Balance Sheet
Balance Sheet
Let us suppose that the company decides to venture into its own
manufacturing activity.
For this purpose, the company buys small industrial shed(Building) for Rs.8
lakh and machinery for Rs.10 lakh.
The payment is made through cheque on 15th June 2011
The company purchases raw material worth of Rs. 3 lakh from Reliable
Suppliers on credit(on 18th June 2011)
Liabilities
Amount (Rs)
Assets
Amount (Rs)
Capital
30,00,000
Cash
09,00,000
Liabilities
Amount (Rs)
Assets
Amount (Rs)
Profits
01,00,000
Bank Balance
02,00,000
Capital
30,00,000
Cash
09,00,000
03,00,000
Stock (FG)
02,00,000
Profits
01,00,000
Bank Balance
02,00,000
Reliable
Suppliers
(creditors)
Stock (FG)
02,00,000
Stock(RM)
03,00,000
Building(Shed)
08,00,000
Building(Shed)
08,00,000
Machinery
10,00,000
Machinery
10,00,000
31,00,000
31,00,000
34,00,000
Balance sheet is snap shot of financial position

34,00,000
Balance Sheet
To finance expansion, company estimates additional requirement of Rs.10

lakh; it negotiate 14% loan(for 3 years)from SFC against the mortgage of
building and machinery (cheque on 25th June 2011)
Liabilities
Amount (Rs)
Assets
Amount (Rs)
Capital
30,00,000
Cash
09,00,000
Profits
01,00,000
Bank Balance
12,00,000
Reliable
Suppliers
(creditors)
03,00,000
Stock (FG)
02,00,000
14% Loan
10,00,000
Stock(RM)
03,00,000
Building(Shed)
08,00,000
Machinery
10,00,000
44,00,000
Internal liabilities(commonly know as Owners

equities = Capital + Profits )
External liabilities (contribution made by creditors
and lenders towards financing assets of a firm).
44,00,000
BS is statement of Sources (from where finance have been raised) and

Resources (in which, money
has been invested)
Fundamental Accounting Equations

Liabilities = assets
Source = Resources
Owners equity + Liabilities =Assets
Liabilities
Possible Ways of Business Transactions

Increase in Liability, followed by increase in
Asset
Decrease in Liability, followed by decrease in
Asset
Increase in one Liability and decrease in
another Liability
Increase in one Asset and decrease in another
Asset
03-10-11
Balance Sheet
Let us assume that whole stock of finished goods(costing Rs.2 lakh) has been
sold on 45 days credit(on 27th June 2011) for Rs.2,60,000/- to Solvent
Buyers & Company.
During 28-30th June 2011, Royal Industries has incurred(and paid in cash)
for the following expenses
Liabilities
Amount (Rs)
Assets
Amount (Rs)
Capital
30,00,000
Cash
Salaries
Rs. 30,000
09,00,000
Rent for Shop
Rs. 10,000
Profits
01,60,000
Bank Balance
12,00,000
Electricity
Rs. 02,000
Reliable
Suppliers
(creditors)
03,00,000
Solvent Buyers
Co.(Debtor)?
02,60,000
Stationary
Rs. 02,000
Refreshments
Rs. 03,000
14% Loan
10,00,000
Stock(RM)
03,00,000
Telephone, postage and Courier Charges
Rs. 01,000
Building(Shed)
08,00,000
Miscellaneous Expenses
Rs. 02,000
Machinery
10,00,000
Total Expenses
Rs. 50,000
44,60,000
44,60,000
BS is statement of Sources (from where finance have been raised) and

Resources (in which, money
has been invested)
Balance Sheet
As profits are liabilities(as per separate entity
concept), by virtue of the same principle,
expenses (and so the losses) asset of the firm
as they are claims of the company owners.
Expenses are to be borne by owners.
Profit figure in B/S is at inflated value. It is
known as gross profit (Selling Price Cost of
Goods Sold)
Net profit = Gross Profit - Expenses

Liabilities
Amount (Rs)
Assets
Amount (Rs)
Capital
30,00,000
Cash
08,50,000
Net Profit
01,10,000
Bank Balance
12,00,000
Reliable
Suppliers
(creditors)
03,00,000
Solvent Buyers
Co.(Debtor)
02,60,000
14% Loan
10,00,000
Stock(RM)
03,00,000
Building(Shed)
08,00,000
Machinery
10,00,000
44,10,000
44,10,000
Need for P&L a/c
Profit and Loss Account
Every business transaction was shown by drawing a new

balance sheet.
In practice B/S is not prepared on daily basis.
It is drawn after some reasonable period of time say a
month, quarter, half year or a year.
This modes operandi destroys the earlier set of data.
Owners and others(in fact, mandatory for income tax
purposes) will be interested in access to the full set of the
data.
There is a need of an account/ a statement which provides
full account/description of all the items affecting profit of a
firm.
Income statement / P&L a/c
03-10-11
Profit and Loss Account of Royal Industries for June 2011
P&L a/c statements reports the revenues and

expenses of a firm an accounting period.
Revenues are incomes which mainly accrue to the
firm either by sale of the goods and services or by
investing the resources of the firm outside.
Expenses are cost incurred in realizing/earning
revenues.
P&L a/c is concerned with matching of the
revenue of a certain specified period with the
expenses of that period.
Matching principle
Expenses
Amount (Rs)
Revenues
Amount(Rs)
Cost of goods Sold

(equitant to cost of
goods purchased and
sold)
6,00,000
Sales Revenue
7,60,000
Gross Profit
1,60,000
Salaries
30,000
Rent for Shop
10,000
7,60,000
Electricity
02,000
Stationary
02,000
Refreshments
03,000
Telephone, postage
and Courier Charges
01,000
Miscellaneous
Expenses
02,000
Net Profit
7,60,000
Gross Profit
1,60,000
1,10,000
1,60,000
1,60,000

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03-10-11

Financial Statements and Accounting

Executives are interested in knowing their financial

The total of these two sides is always equal.

Let us assume that a Pvt Ltd(with name as Royal

Let us assume further that out of Rs. 30 lakh,

Principle of separate entity - not from point of the view

Assume further the company purchases goods

During 5-8 June 2011, Royal Industries has cash

Balance Sheet of Royal Industries as at June 4,2011

Balance Sheet of Royal Industries as at June 8,2011

Change is in composition of assets only.

Profits are payable to owners, hence, liabilities of

Balance Sheet of Royal Industries as at June 15,2011

Balance sheet is snap shot of financial position

To finance expansion, company estimates additional requirement of Rs.10

Internal liabilities(commonly know as Owners

BS is statement of Sources (from where finance have been raised) and

Fundamental Accounting Equations

Possible Ways of Business Transactions

Rent for Shop

Telephone, postage and Courier Charges

BS is statement of Sources (from where finance have been raised) and

Balance Sheet of Royal Industries as at June 27,2011

Need for P&L a/c

Profit and Loss Account

Every business transaction was shown by drawing a new

Profit and Loss Account of Royal Industries for June 2011

P&L a/c statements reports the revenues and

Cost of goods Sold

Rent for Shop

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