Financial Accounting Lecture – 30

Classification of Investments
• Long term investments are those investments that are
meant to be held for a long term period.
• If it is decided to dispose off a long term investment, then its
classification is changed to current investment from long
term.

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Financial Accounting Lecture – 30
Balance Sheet (Liabilities)
Particulars Amount Rs. Amount Rs.
ASSETS
Non Current Assets
Fixed Assets X
Capital Work In Progress X
Deferred Costs X
Long Term Investments X
Current Assets X
TOTAL X
LIABILITIES
Capital and Reserves
Capital X
Reserves X
Profit and Loss Account X X
Long Term and Deferred Liabilities
Long Term Loans X
Liability Against Lease Finance X
Other Long Term Liabilities X
Deferred Tax X X
Current Liabilities
Trade Creditors X
Short Term Borrowings X
Other Payables X
Current Portion of Long Term Borrowings X X
TOTAL 2 X
 Financial Accounting Lecture – 30

LIABILITIES
Capital and Reserves
Capital X
Reserves X
Profit and Loss Account X X

Long Term and Deferred Liabilities

Long Term Loans X
Liability Against Lease Finance X
Other Long Term Liabilities X
Deferred Tax X X

Current Liabilities
Trade Creditors X
Short Term Borrowings X
Other Payables X
Current Portion of Long Term Borrowings X X

TOTAL X
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Financial Accounting Lecture – 30

• Capital
 It is the total of resources supplied to a business by its
owners.
 Capital is termed as “Share Capital” in case of Limited
Companies.

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Financial Accounting Lecture – 30

• Capital Introduced By Owner In form of Assets

Debit Fixed Assets Account

Credit Capital Account

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Financial Accounting Lecture – 30

• Reserves
 Reserve is the portion of profit set aside for use in future
years for a specific purpose.

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Financial Accounting Lecture – 30

• Profit and Loss / Accumulated Profit and Loss Account

 It is that portion of the profit that is reemployed in the
business.
OR
 This is the accumulated balance of undistributed profit.

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Financial Accounting Lecture – 30

• Accumulated Profit and Loss Account

 In the first year of business this account shows following
figure:
Profit for the year X
Less: Transferred to Reserve X
Less: Profit distributed X
Balance carried to Balance Sheet X

 In Subsequent years balance brought forward from

previous years and profit for the year is added and
distributed as above and the balance is carried to next
year.

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Financial Accounting Lecture – 30

• Long Term Loans

 Loans that are payable later than a period of more than
twelve months from the balance sheet date.

• Short Term Loans

 Loans that are payable within twelve months of the
balance sheet date.

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Financial Accounting Lecture – 30

• Current Portion of Long Term Loans

 It is that portion / installment of the long term loan that is
payable with in next twelve months.

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Financial Accounting Lecture – 30

• Other Long Term Liabilities

 These include all other liabilities that are payable after a
period of one year of balance sheet date.
 For example staff gratuity and other benefits, liability
against lease finance and other liabilities that become
payable after a period of one year.

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Financial Accounting Lecture – 30

• Provision
 Provision is charge created for an expected expense or
loss whose actual amount is not known.
 It is usually shown as a reduction in the asset to which it
relates

• Reserves
 Reserve is the portion of profit set aside for use in future
years for a specific purpose.
 It is usually created at the discretion of the owners an is
shown as a liability.

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Financial Accounting Lecture – 30

• Current Liabilities
 Trade Creditors
 Short Term Borrowings
 Other Short Term Liabilities
o Salaries Payable
o Accrued Expenses
o Bills payable
o Advances From Customers
 Current Portion of Long Term Liabilities

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