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Deferred revenue expenditure should be revenue expenditure by nature in the first instance, for example, advertisement.

But its matching with revenue may be deferred considering the benefits to be accrued in future.

Balance Sheet
What is Balance Sheet :

The balance sheet is an accounting statement that summarises the various assets, liabilities and equities held by a company on a specific date. The equities are usually considered as part of the liabilities. The balance sheet is always drawn up at the close of business day, but is most relevant on the last day of the company's accounting period (the balance sheet date). Balance sheet is an important documents not only for bank managers who sanction loan but is equally important to others who give credits and invest in equity etc. All creditors and investors all need to familiarize themselves with the assets, liabilities, and equity of a company. The balance sheet is the best place to find all information at one place. The reason as to why balance sheet is so called is that it is statement where Assets = Liabilities + Equity Major Heads of Balance Sheet : Liabilities:1. Share Capital 2. Reserve and Surplus 3. Secured Loans 4. Unsecured Loans 5. Current Liabilities and Provisions Assets :1. Fixed Assets 2. Investments 3. Current Assets, Loans of Advances 4. Miscellaneous Expenses 5. Profit and Loss Account (Debit balance)

Assets which are likely to be collectible in the short term (usually within 12 months) are considered a "current" asset, while anything owed by the company in the same time frame is considered as a current liability.

VARIOUS TYPES OF CAPITALS (OWNED FUNDS) AND RESERVE DEFINED : (a) Share Capital : It is important to understand the difference between the following types of share capitals :(i) Authorised Capital : This is the maximum amount of capital that can be raised by the company. However, it is not compulsory for the company to raise the full authorised capital.

(iii) Depreciation Reserve : Usually when a depreciation is made in asset. paid up capital is of utmost importance (b) Reserves : . trademarks and so on. but instead of crediting the same to asset account. Thus asset is shown at a higher value than the previous book value and the corresponding increase is created on liability side by increasing reserves under "revaluation reserves". This revaluation is done to make the asset show the true market value of the asset. they credit the amount to Depreciation Reserve Account. However. though may include patents. the value of the asset is credited with the depreciation amount and equal amount is debited to profit and loss account.(ii) Issued Capital : This is the amount of capital which company intends to raise at a given point of time. VARIOUS TYPES OF ASSETS DEFINED : Assets: Items that the business owns and on which a value can be placed. sometimes companies companies debit the depreciation amount to profit and loss account. For the purpose of Balance Sheet. This amount is usually mentioned in the Memorandum of Association of a company. The amount collected as "premium" is known as share premium reserve. while calculating the networth of a company. On such share premium reserve no dividend is payable. (iii) Subscribed Capital : This is the capital which has actually been subscribed. Intangible assets: These are 'non-monetary' but 'identifiable' assets that have no physical substance. Such an entry is called deprecaition reserve. revises) its assets. This acts as a cushion for the company for any future loss. it should be excluded from the owned funds by setting it off against the value of the fixed assets.e. (ii) Revaluation Reserves : Sometimes a company re-values (i. some of important types of reserves are :(i) Share Premium Reserve : Whenever a company issues shares on premium.There are various types of reserves. Current accounting guidelines mean they almost always relate to goodwill. licenses. (iv) General Reserves : This kind of reserves consists of the profits which have not been actually distributed among the shareholders. the amount collected by the company above the face value of the share is called "premium". Therefore. . (iv) Paid Up capital : This is the amount of capital that has been called and received against the subscribed capital.

etc. Current assets: Cash in the bank and 'temporary' assets that the company expects to turn into cash. In case of fixed assets. VARIOUS TYPES OF LIABILITIES DEFINED : Liabilities: All claims of outsiders against the entity are called liability. usually a part of its life is 'being utilised in a particular accounting year. (b) LIFO = LAST IN FIRST OUT: In this method. Plant & Machinery.are examples of such assets. machinery. Furniture & Fittings. including 'ownership interests' held in other companies. it is assumed that inventory first purchased is first consumed/sold out and hence the valuation is done as per purchase price of those items purchased earlier. any goods held for resale. . building. It represents all the things of value. assuming that the items purchased in the last are consumed / sold. stock-in-process (also called as semi-finished goods). is appropriated in the shape of "depreciation" in each accounting year The value of fixed assets at original cost is called "Gross Fixed Assets" and the value of the asset arrived after deducting depreciation is called "Net Fixed Assets". which one owes to others. but no bill of exchange/promissory note duly accepted/signed is held. Example of fixed assets include. Inventory: Stock of raw material. land. Other long-term 'minority' investments held can be shown at historical cost or current valuation. Typically these assets include land. Investments: A firm may invest its surplus fund in Government Securities or debt instruments or equities of the corporate sector. For joint ventures and associates. though the accounting notes must declare These are asset. finished goods and consumable stores are known as inventory. and thus a certain portion of its cost (depending upon the total expected economic life of the asset).Tangible assets: These are 'long-lived' physical items held for the purpose of earning revenue. the amount of such credit sale is known as "Accounts Receivable". the company's share of the entity's assets is shown. property. Stocks (at the lower of either cost or net realisable value). the valuation of item sold first is done as per purchase price of the last one. plant. Vehicles. fittings and motor vehicles. Accounts Receivable: When credit sale is made. raw materials to be used in manufacture and work in progress. fixtures. the benefit of which is usually available to the entity over several accounting periods. Fixed asset investments: These are long-term investments.IN FIRST OUT: In this method. Usually one of the following two methods is used for valuation of inventory:(a) FIFO = FIRST .

g. Acceptances: These are bills of exchange accepted by the firms and generally known as. Unsecured Loans: These are loans and advances (including short term) from Banks/ Subsidiaries/others obtained without creating any charge on the assets of the Firm. Such a discount is known as trade "discount" and is generally not shown in the P&L A/C separately. e. Provisions: When a liability cannot be precisely determined. Some companies agree to sell the goods at a price lower than the normal price provided the customer agrees to buy the goods in bulk. in nutshell. these are recorded as sales in the company's account books. e. 5% discount will be allowed. after creation of charge on its assets. It includes acceptances. sundry creditors. . This is called "Cash Discount" or "Sales Discount". an entity may specify that if their bills are paid within 15 days. allow some discount. Thus. Examples are provisions for dividends/taxation/PF/contingencies/Debts etc. expenses accrued. rather taken into account in the value of Sales.Current liabilities: The liabilities which are to be met out of the current assets within one year or within one operating cycle (whichever is longer). Accounts Payable: These represents the debts of the creditors for purchase which is not evidenced by any formal acceptance as defined above. Long Term or Term Liabilities : These are the liabilities which-are usually for more than one year and include all the liabilities other than current liabilities and provisions (see below). unclaimed dividends. advance payments. This is known as 'net sales' or "Sales". or these got damaged during transit etc. with a view to" boost early" realisation of receivables. we can say liabilities the company expects to meet within twelve months of the balance sheet date are called current liabilities. Cash Discount / Sales Discount / Trade Discounts: Some companies. It includes fixed deposits received from public. It includes 'Debentures'. However. it is estimated and provided for.g. These are. In case of promissory notes it is referred to as "Notes Payable". The sum total of such sales during a period is referred as 'gross sales'. the value of such goods are set off against gross sales. Accrued Liabilities: These represent the obligations accrued but not paid and shall be paid in the next accounting period. Some other Terms relating to analysis of Balance Sheet defined : Net Sales: Whenever goods are supplied to the customers." Bills Payable". some of goods thus supplied may be subsequently returned by the customers due to various reasons. also referred to as "Sundry Creditors". Secured Loans: It represents loans and advances from banks/subsidiaries/others raised by a company. the goods may not be strictly as per specification demanded by the customer. Such returns and allowances are separately accounted for and at the time of preparation of P&L Statement.

are referred as 'non-operating income' or 'other Income'. in case of the "written down value" method. What is a contingent liability? Where is it shown in the Balance Sheet? Contingent liability is a liability which may arise as a liability in future on the happening of some event. Cost of goods sold: It refers to the direct input costs of goods sold.Other Income: Income obtained from the Business operations of an entity is called Operating Income and Income arising out of an activity which is not the business activity of the firm. Operating Expenses: All the expenses which are not directly incurred on production. wages of labour in the factory etc. and thus a certain portion of its cost (depending upon the total expected economic life of the asset). on sale of fixed assets an entity may be able to realise more than the book value of such an asset. but are necessary to run the business. However. This represents the margin of profit at the point of production of goods. These are direct input costs incurred towards the product manufacturing. electric charges at the factory site.earlier depreciation charged) at the end of the previous year. This is not an actual liability at present and therefore does not occur in the main body of the balance Sheet. the expiration of the cost of intangible assets is referred as' 'amortisation. the expiration is calculated every year at a pre-determined rate on the amount of the depreciated value (i. original cost . is appropriated in the shape of "depreciation" in each accounting year The value of fixed assets at original cost is called "Gross Fixed Assets" and the value of the asset arrived after deducting depreciation is called "Net Fixed Assets". Manufacturing Expenses: The expenses which are directly incurred on the production / manufacturing process (such as freight. and comprises of cost of the raw material and manufacturing expenses.Closing Stock Gross Profit: It is the difference between sales and cost of goods sold. factory rent. In the straight line method. such as depreciation. whereas that of a fixed tangible asset is called 'Depreciation'. For example. Amorstisation: Depreciation and amortisation are almost identical. It can be calculated as follows: Opening Stock + Purchases + Manufacturing Expenses . On the other hand. .e. the depreciation is arrived at by dividing the original cost of a fixed asset by its expected economic life. usually a part of its life is 'being utilised in a particular accounting year. It covers all expenses relating to selling & distribution as well as general administration expenses (including personnel expenses) and indirect costs.) are called manufacturing expenses. This is called other income. Depreciation: In case of fixed assets. The two methods mostly used for calculating this expense are known as (a) Straight Line Method and (b) Written down value method or diminishing value method. are grouped as "operating expenses".

Some of the examples of Contingent liability are:- a) Claims against a company not acknowledged as debt. c) Uncalled liability on account of partly paid shares in the investment portfolio .Contingent Liability is shown as a footnote to the balance sheet. b) Arrears of fixed cumulative dividend on cumulative preference shares.