Balance sheet

Dr. T.K. Jain. AFTERSCHOOOL M: 9414430763 tkjainbkn@yahoo.co.in www.afterschool.tk www.afterschoool.tk

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What is balance sheet?
• It is a statement showing assets and liabilities. • Assets help us in earning profit over a long period of time and include all the payments – which will enable us to earn revenues over longer period of time (longer then one year). • Liabilities are our dues - we have to make their payments – in the years to come.
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Classify assets and liabiilties
• First classify assets and liabilities • Put them in two categories – short term and long term. • Short term – means upto one year. • Long term – beyond one year.

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Why is it called balance sheet?
• It will always balance – so it is called balance sheet.

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Hypothetical example : these are balances of various accounts at the end of year. 2007 share building plant loans sales purchase Depreciation on plant (accumulated) other expenses inventory debtors creditors bad debt dividend etc. recd.
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2006 40 30 50 20 200 150 20 10 20 30 20 30

50 40 100 80 300 200 30 20 40 30 20 10 30

Other information:
• Take bank / overdraft as balancing figure.

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Analysis
• Share capital 50 40 • This is the first item. It will go into liabilities side of balance sheet. • Since shares have increased from 40 to 50, it means, we have added more capital – thus it is source of funds. • It has increased our funds by 10.

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• building 40 30 • Building is a part of long term assets. Since it has increased from 30 to 40, it means that we have applied our funds by 10. our application of funds will increase by 10 and funds will decrease by 10.

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Analysis condinued
• Plants have increased from 50 to 100 that means we have applied our funds in these. Our plans have increased from 50 to 100, so our application of funds have increased by this amount. We also have to keep in mind depreciation. Net purchase of plant is (100+10-50) = 60. • Other expenses are part of P&L account and if they have increased they will reduce our profits. • Inventory is current assets. Change in these will reflect increase in working capital. It will be showen in trading account, balance sheet and also in statement on changes in working capital.
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Analysis continued
• Debtors and creditors are short term assets and liabiities respectively. They will come in balance sheet and in stattement of changes in working capital. • When debtors increase they will increase there will be increase in working capital • When creditors increase, there will be decrease in working capital and vice versa
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Analysis continued:
• Bad debt is part of P&L account. If it has increased, our expenses have increased. • Dividend and oher income are nonoperating income. They will come in P&L account – but while calculating funds flow statement, they will be deducted from profit as calculated from P&L account. They will be part of source of funds.
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P&L Account 2007

inventory bad debt purchase other exp. accumulated dep. (plants) profit total

20 Sale 10 other income 200 inventory 20 10 110 370
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300 30 40

370

Balance sheet 2007

share capital loan profit creditors depreciation

50 building 80 plant 110 debtors 20 inventory 30 debtors

40 100 30 40 30

Bank

50

290
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240

Thanks
Afterschoool conducts three year integrated PGPSE (after class 12 along with CA & CS) and 18 month PGPSE (Post Graduate Programme in Social Entrepreneurship) along with preparation for CS / CFP / CFA /CMA / FRM. This course is also available online also. It also conducts workshops on social entrepreneurship in schools and colleges all over India – start social entrepreneurship club in your institution today with the help from afterschoool and help us in developing society.

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www.afterschoool.tk social entrepreneurship for better society

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