Preview

Key Pointers to Balance Sheet and Profit and Loss Statements

Better Essays
Open Document
Open Document
7303 Words
Grammar
Grammar
Plagiarism
Plagiarism
Writing
Writing
Score
Score
Key Pointers to Balance Sheet and Profit and Loss Statements
Key pointers to balance sheet and profit and loss statements:

 A balance sheet represents the financial affairs of the company and is also referred to as “Assets and Liabilities” statement and is always as on a particular date and not for a period.

 A profit and loss account represents the summary of financial transactions during a particular period and depicts the profit or loss for the period along with income tax paid on the profit and how the profit has been allocated (appropriated).

 Net worth means total of share capital and reserves and surplus. This includes preference share capital unlike in Accounts preference share capital is treated as a debt. For the purpose of debt to equity ratio, the necessary adjustment has to be done by reducing preference share capital from net worth and adding it to the debt in the numerator.

 Reserves and surplus represent the profit retained in business since inception of business. “Surplus” indicates the figure carried forward from the profit and loss appropriation account to the balance sheet, without allocating the same to any specific reserve. Hence, it is mostly called “unallocated surplus”. The company wants to keep a portion of profit in the free form so that it is available during the next year for appropriation without any problem. In the absence of this arrangement during the year of inadequate profits, the company may have to write back a part of the general reserves for which approval from the board and the general members would be required.

 Secured loans represent loans taken from banks, financial institutions, debentures (either from public or through private placement), bonds etc. for which the company has mortgaged immovable fixed assets (land and building) and/or hypothecated movable fixed assets (at times even working capital assets with the explicit permission of the working capital banks)

Usually, debentures, bonds and loans for fixed assets are secured by fixed assets, while

You May Also Find These Documents Helpful

  • Good Essays

    The purpose of the profit and loss account is to enable the manager/owner to tell whether the business is making a loss in terms of revenue. As per the trading, profit and loss account for smiths for the year ended 31st December the net profit is £130,473.…

    • 1514 Words
    • 6 Pages
    Good Essays
  • Better Essays

    First, the income statement is used to express a firm’s revenues, gains, expenses, and losses. Revenue is the money earned from day to day business dealings within the company. The expenses that are located on the income statement are due to cost of operating a business. Companies balance out the equation on the income statement as follows revenues minus expenses equal net income. The income statement shows how much profit was earned by the company after all expenses have been taking out. If total expenses exceed total revenues, a net loss is reported on the income sheet.…

    • 814 Words
    • 4 Pages
    Better Essays
  • Better Essays

    Week 4 the Lemonade Stand

    • 2664 Words
    • 11 Pages

    The Balance Sheet is another type of financial statement used by a company to see a snapshot of the company's financial position at a particular point in time. It lists the value of the company's assets followed by its liabilities. A balance sheet can be summed up by a simple equation:…

    • 2664 Words
    • 11 Pages
    Better Essays
  • Satisfactory Essays

    A balance sheet is used to report the company’s assets, asset claims, and liabilities at a specific point in time. The basic accounting equation is what makes up the balance sheet. Assets are added together to come up with a total cost. Liabilities and stockholder’s equity is also added together. The two sums are then added together to figure out if the business relies on the owners and operators, or if it relies more on the investors. Shown below is an example of a company whose assets outweigh their liabilities.…

    • 366 Words
    • 2 Pages
    Satisfactory Essays
  • Satisfactory Essays

    Basics of Accounting

    • 655 Words
    • 2 Pages

    Along with the statement of cash flows and income statement, the balance sheet is one of the three most important documents used by investors to understand the financial condition of a company. Structurally, the balance sheet is relatively simple in concept. Every company's balance sheet is comprised of three elements:…

    • 655 Words
    • 2 Pages
    Satisfactory Essays
  • Powerful Essays

    Unit 2 P5

    • 1027 Words
    • 4 Pages

    1. Explain the purpose and use of a profit and loss account: The purpose of the profit and loss account is to: Show whether a business has made a PROFIT or LOSS over a financial year. Describe how the profit or loss arose – e.g. categorising costs between "cost of sales" and operating costs…

    • 1027 Words
    • 4 Pages
    Powerful Essays
  • Satisfactory Essays

    B120 tma03

    • 1125 Words
    • 5 Pages

    A profit and loss account is supposed to show a businesses’ income and expenditures and calculate the company’s net profit or loss based on the difference between those numbers. It is really useful in determining past performance and to try to predict future results. It allows a business to see what kind of changes can make an improvement on its profit. It also gives enough information to help a business to set targets and form a strategy.…

    • 1125 Words
    • 5 Pages
    Satisfactory Essays
  • Good Essays

    1. The percentage analysis of increases and decreases in individual items in comparative financial statements is called…

    • 1524 Words
    • 7 Pages
    Good Essays
  • Good Essays

    Unit 3 P1

    • 769 Words
    • 4 Pages

    A balance sheet is the most important financial statement of a company. The balance sheet…

    • 769 Words
    • 4 Pages
    Good Essays
  • Good Essays

    | A statement of revenue and expense identifies if an organizations has had a profit or a loss of revenue over a certain period of time. The formula is Operating Revenue – Operating Expenses = Operating Income.…

    • 357 Words
    • 2 Pages
    Good Essays
  • Good Essays

    accounting questions

    • 5042 Words
    • 21 Pages

    3) The balance sheet is a financial snap shot of a company at a particular point in time. The balance sheet lists the assets, liabilities, and equity of the company. Reflect on your personal financial situation, can you apply the concepts of the balance sheet? What did you learn from this reflection?…

    • 5042 Words
    • 21 Pages
    Good Essays
  • Good Essays

    3. A balance sheet covers a period of time, such as a month or year.…

    • 2935 Words
    • 12 Pages
    Good Essays
  • Good Essays

    3. A balance sheet shows only the ending balances, in a summarized format, of all balance sheet accounts in the accounting system as of a particular date.…

    • 841 Words
    • 4 Pages
    Good Essays
  • Better Essays

    Accouting

    • 1547 Words
    • 5 Pages

    Calculating profits in the financial year is important for the company. According to AASB, profits are disclosed by comprehensive income statement. In accounting practice, profit is resulted by using income minus expense. In QBE Insurance Group Ltd v ASC (1992) 38 FCR 270, the held are influenced by the accounting standards to define profits. In addition, depend on the Corporate Act 2001, profit means the comparison between assets at two specific dates. So profits are the increased value of fixed and current assets.…

    • 1547 Words
    • 5 Pages
    Better Essays
  • Good Essays

    A company’s lenders are usually interested in the quantity of existing assets the company owns since these assets can be liquidated in the case of collapse or bankruptcy. Moreover, the existing assets are very important since they offer a financial source for daily operations.…

    • 774 Words
    • 3 Pages
    Good Essays