A Balance Sheet is a statement that shows the financial position of the entity at a given date. As you have seen that on the top of the Balance Sheet there is, “as at……” written which mentions the particular date at which it is prepared. It has two broad heads which are to be tallied. They are – (1) Assets and (2) Equity and Liabilities.
On the asset side, it displays the firm’s current and non-current assets. Current assets are those assets which can be converted into cash within one year and includes cash in hand, stock, debtors, bills receivables, cash at bank, marketable securities, etc. Non – current assets have two parts: Tangible and Intangible assets. Tangible assets are the physical assets of the company like machinery, building, furniture, land, vehicles, etc. Intangible assets are the non-physical assets of the company i.e. patents, trademark, goodwill, etc.
On the equity and liabilities side, it displays the shareholder’s fund, current and non-current liabilities. Shareholders fund includes the shareholder’s equity and reserves and surplus. Current liabilities are those liabilities which are to be paid within 1 year and includes creditors, bills payable, short term loan, etc. Non – current liabilities are those liabilities which are to be paid after a period and includes long-term borrowings, bonds, etc.
Profit and Loss Account also known as an income statement or statement of revenue and expenses. The account represents the financial performance of the entity in a particular period.
First of all the net sales (sales – sales return) is recorded after that the cost of goods sold is deducted, and the result is the gross profit of the entity. Now from this gross profit the office and administration (rent, insurance, printing, and stationery, etc.), selling and distribution (carriage outwards, bad debts, etc.) expenses are reduced which amounts to operating profit.
After arriving at operating profit operating income (rent received, profit from the sale of assets, etc.) are added to it while the operating expenses (interest on loan, loss on sale of assets) are lessened from it which results in the net profit or loss. If the income exceeds expenses it represents net profit