BALANCE SHEET

Owners equity
Owners equity is the residual interest in the assets of a business after liabilities are
deducted. It is the net worth of a business and equals the difference between assets
and liabilities. Equity represents the amount belonging to the owner once all
financial obligations have been met.
Equity includes the initial and ongoing capital investments made by the owners,
retained earnings (or accumulated losses), and reserves. Capital is any cash or
assets the owner has contributed to the business. Retained earnings are any profits
that are reinvested in the business. Reserves are profits set aside for particular
purposes such as asset replacement, or major building maintenance.
Owners equity is also referred to as proprietorship, members funds, capital, or
shareholders equity.

Liabilities
Liabilities are the financial obligations or debts of the business and include claims
that creditors have on the businesss resources such as accounts payable, bank
overdrafts, provision for employees annual leave and long service leave, tax
liabilities, and loans payable. Essentially, liabilities are amounts owed by the
business to external parties. Liabilities are categorised as either current or noncurrent liabilities.

Current liabilities:
are expected to be paid within the next 12 months and include creditors, (accounts
payable), inventory purchases, overdraft, short-term loans and credit card debts.
Non-current liabilities:
are not expected to be settled within the next 12 months and include mortgages on
buildings and equipment, and long term loans.

Assets
Assets are the resources that a business uses to operate its business such as cash,
inventories, land and buildings, and equipment. Essentially, assets are any items of

value owned or controlled by the business that contributes towards generating

revenue. Assets are categorised as either current or non-current assets.

Non-current assets: (Property, Plant &Equipments)

are not expected to be consumed or converted into cash within the next 12 months.
Examples include assets that the business would generally keep for more than one
year such as plant and equipment, cars and buildings.

Current assets:
are items of value that are expected to be consumed or converted into cash within
the next 12 months. Examples include cash, inventory that is turning over regularly
and accounts receivable.

INCOME STATEMENT
Components
Income statement comprises of the following main elements:

Sales - Net
Revenue includes income earned from the principal activities of an entity. So for
example, in case of a manufacturer of electronic appliances, revenue will comprise
of the sales from electronic appliance business. Conversely, if the same
manufacturer earns interest on its bank account, it shall not be classified as revenue
but as other income.

Cost of Sales
Cost of sales represents the cost of goods sold or services rendered during an
accounting period.
Hence, for a retailer, cost of sales will be the sum of inventory at the start of the
period and purchases during the period minus any closing inventory.
In case of a manufacturer however, cost of sales will also include production costs
incurred in the manufacture of goods during a period such as the cost of direct
labor, direct material consumption, depreciation of plant and machinery and factory
overheads, etc.
You may refer to the article on cost of sales for an explanation of its calculation.

Administrative Expenses
Administrative expenses generally comprise of costs relating to the management
and support functions within an organization that are not directly involved in the
production and supply of goods and services offered by the entity.
Examples of administrative expenses include:
Salary cost of executive management
Legal and professional charges
Depreciation of head office building
Rent expense of offices used for administration and management purposes

Cost of functions / departments not directly involved in production such as finance

department, HR department and administration department

Other Expenses
This is essentially a residual category in which any expenses that are not suitably
classifiable elsewhere are included.

Distribution Cost
Distribution cost includes expenses incurred in delivering goods from the business
premises to customers.

Finance Cost
Finance charges usually comprise of interest expense on loans and debentures.
The effect of present value adjustments of discounted provisions are also included
in finance charges (e.g. unwinding of discount on provision for decommissioning
cost).

Other Income
Other income consists of income earned from activities that are not related to the
entity's main business. For example, other income of an entity that manufactures
electronic appliances may include:
Gain on disposal of fixed assets
Interest income on bank deposits
Exchange gain on translation of a foreign currency bank account

Income tax
Income tax expense recognized during a period is generally comprised of the
following three elements:
Current period's estimated tax charge

Prior period tax adjustments

Deferred tax expense

Prior Period Comparatives

Prior period financial information is presented along side current period's financial
results to facilitate comparison of performance over a period.
It is therefore important that prior period comparative figures presented in the
income statement relate to a similar period.
For example, if an organization is preparing income statement for the six months
ending 31 December 2013, comparative figures of prior period should relate to the
six months ending 31 December 2012.

Cash Flow Statement Components

The cash flow statement components provide a detailed view of cash flow from
operations, investing, and financing:
Cash Flow from Operating Activities
The net amount of cash coming in or leaving from the day to day business
operations of an entity is called operating cash flow. Basically it is the operating
income plus non-cash items such as depreciation added. Since accounting profits
are reduced by non-cash items (i.e. depreciation and amortization) they must be
added back to accounting profits to calculate cash flow.
Operating cash flow is an important measurement because it tells the analyst about
the viability of an entities current business plan and operations. In the long run,
cash flow from operations must be cash inflows in order for an entity to be solvent
and provide for the normal outflows from investing and finance activities.
Cash Flow From Investing Activities
Cash flow from investing activities would include the outflow of cash for long term
assets such as land, buildings, equipment, etc., and the inflows from the sale of
assets, businesses, securities, etc. Most cash flow investing activities are cash out
flows because most entities make long term investments for operations and future
growth.
Cash Flow From Finance Activities
Cash flow from finance activities is the cash out flow to the entities investors (i.e.
interest to bondholders) and shareholders (i.e. dividends and stock buybacks) and
cash inflows from sales of bonds or issuance of stock equity. Most cash flow finance
activities are cash outflows since most entities only issue bonds and stocks
occasionally.

Depreciation

1.
decrease in value due to wear and tear, decay, decline in price, etc.
2.
such a decrease as allowed in computing the value of property for taxpurposes.
3.
a decrease in the purchasing or exchange value of money.
4.
a lowering in estimation.
1.

a reduction in the value of an asset over time, due in particular to wear and tear.
"provision should be made for depreciation of fixed assets"
synony devaluation, devaluing, decrease in value, lowering in value, reduction in
ms:
value, cheapening, markdown, reduction, decline, downturn, downswing,dro
p, slump, plunge, tumble; More

a decrease in the value of a currency relative to other currencies.

plural noun: depreciations
"depreciation leads to losses for non-dollar based investors"