Final Statements:

Balance Sheet
Trading and Profit & Loss account
Balance Sheet

The balance sheet (also called statement

of financial position or statement of financial
condition) is a snapshot of the financial status
of an organization at a point in time.

The balance sheet has two sections

(1) assets and
(2) liabilities plus owners’ (stockholders’)
equity.
The basic equations (read from balance
sheet)

⚫ Assets: What you have

⚫ Liabilities: What you owe
⚫ Owner’s equity: Value to owners
Balance Sheet

The owners’ equity of a corporation

is called stockholders’ equity.

Stockholders’ equity

Paid-in Retained
capital earnings
In brief.
Format
Assets
Liabilities
What do you understand in these figures
A balance sheet is like a great novel written in a language you don’t speak .
Trading and Profit & Loss account
Single step format
Multi step format
Multi step format
Trading and Profit & Loss account
Revenues – expenses = net profit.

⚫ P&L statements generally follow this format:

⚫ Revenues
– Operating (variable) expenses
= Gross profit (operating) margin
– Overhead (fixed expenses)
= Operating income
+/– Other income or expense (non-operating)
= Pre-tax income
– Income taxes
= Net income (after taxes)
Explanation of Terms..
⚫ Revenue is the money you receive in payment for your products
or services.
⚫ Operating, or variable, expenses are the expenses that rise or
fall based on your sales volume.
⚫ Gross profit margin or operating margin is the amount left
when you subtract operating expenses from revenues.
⚫ Overhead, or fixed, expenses are costs that don’t vary much
month-to-month and don’t rise or fall with the number of sales you
make. Examples might include salaries of office staff, rent, or
insurance.
⚫ Operating income is income after deducting operating and
overhead expense.
⚫ Other income or expenses (non-operating) generally don’t relate to
the operating side of the business, rather to how the management
finances the business. Other income might include interest or dividends
from company investments, for example. Other expenses might include
interest paid on loans.
⚫ Pre-tax income is income before governments take their share.
⚫ Net income (after taxes) is the final amount on most profit-and-loss
statements. It represents the net total profit earned by the business
during the period, above and beyond all related costs and expenses.
Trading account
Trading and Profit & Loss account
Relationship Between Balance Sheet and
Income Statement
Analysis of P&L a/c & Balance Sheet
Analysis of P&L a/c & Balance Sheet
Analysis of P&L a/c & Balance Sheet
Record the following…
⚫ Retained earnings
⚫ Furniture & Fittings
⚫ Land
⚫ Prepaid Insurance
⚫ Debtors
⚫ Purchase of JCB Machine
⚫ Mobile Expenses
⚫ Royalty amount recd.
⚫ Depreciation
⚫ Equity Shares
⚫ Inventory
⚫ Short term investments
⚫ Interest payable
⚫ Salary
⚫ Bank Loan
⚫ Purchase of Raw Material
⚫ Printing & Stationary
⚫ Bills payable
⚫ Account receivable
⚫ Cash
⚫ Royalty paid
⚫ Long term Investment
⚫ Short term loans
⚫ Computers & Machines