Assignment:

Financial Accounting

Submitted by:
Rawige Fatima

Submitted to:
Mam Rubab Anum

Roll No:
46
GIRLS COLLEGE OF WOMEN

UNIVERSITY FAISALABAD
CONTENTS:
 DEFINE BALANCE SHEET
 EXPLANATION OF BALANCE SHEET
 HOW TO PREPARE BALANCE SHEET
 DEFINE TRADING ACCOUNT
 EXPLANATION OF TRADING ACCOUNT
 HOW CAN WE MAKE TRADING ACCOUNT
 DEFINE PROFIT AND LOSS ACCOUNT
 EXPLANATION OF PROFIT AND LOSS ACCOUNT
 PREPARATION OF PROFIT AND LOSS ACCOUNT

BALANCE SHEET
DEFINITION:
In financial accounting, a balance sheet is a summary of the financial balances of an individual
or organization, whether it be a sole proprietorship, a business partnership, a corporation, private
limited company or other organization such as government or not-for-profit entity.

EXPLANATION OF BALANCE SHEET

EQUATION OF BALANCE SHEET:
Most balance sheets are arranged according to this equation..
ASSETS=LIABILITIES +SHAREHOLDER’S EQUITY
The equation above includes three broad buckets, or categories of values which must be
accounted for:
ASSETS:
An asset is a resource with economic value that an individual, corporation, or country owns or
controls with the expectation that it will provide a future benefit. Assets are reported on a
company's balance sheet and are bought or created to increase a firm's value or benefit the firm's
operations.
TYPES OF ASSETS
Assets can be further broken down into current assets and non assets.
Current assets are all the assets of a company that are expected to be sold or used as a result of
standard business operations over the next year. Current assets include cash, cash
equivalents, accounts receivable, stock inventory, marketable securities, pre-paid liabilities, and
other liquid assets.
Non-current assets are a company's long-term investments for which the full value will not be
realized within the accounting year. Noncurrent assets appear on a company's balance sheet.

LIABILITIES:
A liability is something a person or company owes, usually a sum of money. ... Recorded on the
right side of the balance sheet, liabilities include loans, accounts payable, mortgages, deferred
revenues, bonds, warranties, and accrued expenses.
TYPES OF LIABILITIES:
Current liabilities are a company's short-term financial obligations that are due within one year
or within a normal operating cycle. An example of a current liability is money owed to suppliers
in the form of accounts payable.
Noncurrent liabilities, also known as long-term liabilities, are obligations listed on the balance
sheet not due for more than a year. Examples of noncurrent liabilities include long-term loans
and lease obligations, bonds payable and deferred revenue.
SHAREHOLDER’S EQUITY:
Shareholders' equity (or business net worth) shows how much the owners of a company have
invested in the business—either by investing money in it or by retaining earnings over time. On
the balance sheet, shareholders' equity is broken down into three categories: common shares,
preferred shares and retained earnings.
Equation Of Shareholder’s Equity:
Just as assets must equal liabilities plus shareholder’s equity, can be depicted by this equation..
Shareholder’s Equity =Assets – Liabilities

HOW TO PREPARE BALANCE SHEET

( EXPLANATION)
Here are the steps you can follow to create a basic balance sheet for your organization. Even if
some or all of the process is automated through the use of an accounting system or software,
understanding how a balance sheet is prepared will enable you to spot potential errors so that
they can be resolved before they cause lasting damage.
1. Determine the Reporting Date and Period

A balance sheet is meant to depict the total assets, liabilities, and shareholders’ equity of a
company on a specific date, typically referred to as the reporting date. Often, the reporting date
will be the final day of the reporting period.
Most companies, especially publicly traded ones, will report on a quarterly basis. When this is
the case, the reporting date will most usually fall on the final day of the quarter:
 Q1: March 31
 Q2: June 30
 Q3: September 30
 Q4: December 31
Companies that report on an annual basis will often use December 31st as their reporting date,
though they can choose any date.
It's not uncommon for a balance sheet to take a few weeks to prepare after the reporting period
has ended.

2. Identify Your Assets

After you’ve identified your reporting date and period, you’ll need to tally your assets as of that
date.
Typically, a balance sheet will list assets in two ways: As individual line items and then as total
assets. Splitting assets into different line items will make it easier for analysts to understand
exactly what your assets are and where they came from; tallying them together will be required
for final analysis.
Assets will often be split into the following line items:
Current Assets:
Cash and cash equivalents
Short-term marketable securities
Accounts receivable
Inventory
 Other current assets
Non-current Assets:
Long-term marketable securities
Property
Goodwill
Intangible assets
Other non-current assets
Current and non-current assets should both be subtotalled, and then totalled together.

3. Identify Your Liabilities

Similarly, you will need to identify your liabilities. Again, these should be organized into both
line items and totals, as below:
Current Liabilities:
Accounts payable
Accrued expenses
Deferred revenue
Current portion of long-term debt
Other current liabilities
Non-Current Liabilities:
Deferred revenue (non-current)
Long-term lease obligations
Long-term debt
Other non-current liabilities
As with assets, these should be both subtotalled and then totalled together.
4. Calculate Shareholders’ Equity

If a company or organization is privately held by a single owner, then shareholders’ equity will
generally be pretty straightforward. If it’s publicly held, this calculation may become more
complicated depending on the various types of stock issued.
Common line items found in this section of the balance sheet include:
Common stock
Preferred stock
Treasury stock
Retained earnings

5. Add Total Liabilities to Total Shareholders’ Equity and Compare to Assets

To ensure the balance sheet is balanced, it will be necessary to compare total assets against total
liabilities plus equity. To do this, you’ll need to add liabilities and shareholders’ equity together.
Here's an example of a finished balance sheet:
If you’ve found that the balance sheet doesn't balance, there's likely a problem with some of the
accounting data you've relied on. Double check that all of your entries are, in fact, correct and
accurate. You may have omitted or duplicated assets, liabilities, or equity, or miscalculated your
totals.

TRADING ACCOUNT
Definition:
Trading account is a statement which is prepared by a business firm. It shows the gross profit
of business activities during a specific period. It is a part of the final accounts of the entity. In
other words, the trading account gives details of total sales, total purchases and direct expenses
relating to purchase and sales. Trading account format for the year contains Particulars, Amount,
Dr., Cr., Purchases, Sales, etc. In this article, we will see the advantages of a Trading account and
Trading account format.X

FORMULA:
The formula of gross profit is as follows:
Gross Profit = Net Sales -Cost Of Goods Sold
Where
Net Sales =Gross Sales Of The Business Minus, Sales Returns, Discounts and Allowances
The Trading account only the direct expenses and direct revenues while calculating Gross .This
account is mainly prepared to understand the Profit earn by the business on the purchases of
goods.
Items that are seen in debit side includes purchases, opening stock and direct expenses while
credit side includes closing stock and sales. Closing entries for Gross loss or gross profit.
The following entries are passed:
In case of Gross loss:
Profit and loss A/c Dr.
To Trading A/c
In case of Gross profit:
Trading A/c Dr.
To profit and loss A/c

PREPARING TRADING ACCOUNT

For the following question prepare an Trading Account:

SOLUTION:
TRADING ACCOUNT
Closing Entry

PROFIT AND LOSS ACCOUNT

An income statement or profit and loss account is one of the financial statements of a company
and shows the company's revenues and expenses during a particular period. It indicates how the
revenues are transformed into the net income or net profit. 

EXAMPLES:
The examples of expenses that can b included in a profit and loss account are:
Sales Tax
Maintenance
Depreciation
Administrated Expense
Selling and distribution Expense
Provisions
Fright and carriage on Sales
Wages And Salaries

These appear in debit side on profit and loss account while commission received, discount
received, profit obtained on Sales of assets appear on the Credit side.

EQUATION OF NET PROFIT:

Net Profit = Total Revenue - Total Expenses

Here's an example: An ecommerce company has $350,000 in revenue with a cost of goods sold
of $50,000.

PREPERATION OF PROFIT AND LOSS

ACCOUNT

STEPS:

Step 1: Calculate revenue. ...

Step 2: Calculate cost of goods sold. ...
Step 3: Subtract cost of goods sold from revenue to determine gross profit. ...
Step 4: Calculate operating expenses. ...
Step 5: Subtract operating expenses from gross profit to obtain operating profit.