A balance sheet of a company is a financial statement that depicts the assets, liabilities and shareholders’ equity of the company at a point of time, usually at the end of the accounting year. A balance sheet of a company is reported in a vertical format which is different from that of a partnershiRead more
A balance sheet of a company is a financial statement that depicts the assets, liabilities and shareholders’ equity of the company at a point of time, usually at the end of the accounting year. A balance sheet of a company is reported in a vertical format which is different from that of a partnership where the horizontal format is used.
COMPONENTS OF A BALANCE SHEET
The three main components of a balance sheet are Assets, Liabilities and Shareholders’ equity.
Assets: They are divided into two main categories that are current assets and non-current assets. If an asset is expected to be realised within 12 months or is primarily held for being traded, or is cash or cash equivalent, then those assets are termed as current assets. All assets that are not current assets are grouped under non-current assets. They are normally realised after 12 months.
Liabilities: They are categorised as current liabilities and non-current liabilities. If the amount owed by the company to an outside party is due to be settled in 12 months, then it can be termed as a current liability. The rest of the liabilities are referred to as non-current liability.
Shareholders’ Equity: This is the money owed to the owners of the company, that is shareholders. It is also called net assets since it is equal to the difference between total assets and total liabilities. Their main categories are Shareholders’ Capital and Reserves and Surplus.
FORMAT OF BALANCE SHEET
As per the Companies Act 2013, the following format should be used for preparing a balance sheet.
From the above Balance sheet, we should get:
Assets = Liabilities + Shareholders’ Equity
Relevant notes for each component should also be prepared when necessary.
A revaluation Account is an account created to record the changes in the value of assets and liabilities during: Change in profit sharing ratio Admission of a partner Retirement of a partner Death of a partner The realization Account is prepared to sell assets and pay liabilities in the event of theRead more
A revaluation Account is an account created to record the changes in the value of assets and liabilities during:
Change in profit sharing ratio
Admission of a partner
Retirement of a partner
Death of a partner
The realization Account is prepared to sell assets and pay liabilities in the event of the dissolution of the firm.
Revaluation Account is prepared for dissolution of the partnership while Realization Account is prepared for dissolution of the partnership firm.
The increase or decrease in the value of assets and liabilities is transferred to the Realisation Account and the gain or loss thereof is transferred to the old partner’s capital account.
A decrease in Assets and an Increase in Liabilities is debited since it is a loss for the firm and all the losses are debited.
An increase in Assets and a Decrease in Liabilities is credited since it is gained for the firm and all the profits are credited.
Format of Revaluation Account will be:
Format of Realization Account will be:
The difference between Realisation and Revaluation Account is:
Revaluation Account
Realization Account
Prepared to record changes in assets and liabilities
Prepared to record sale of assets and payment of liabilities
Prepared at the time of dissolution of the partnership
Prepared at the time of dissolution of partnership firm
Assets and liabilities still exist in the books only their values change
Assets and liabilities do not exist in the books of the firm
This account contains only those assets and liabilities that are to be revalued.
This account contains all the assets and liabilities of the firm.
A revaluation Account can be prepared any number of times during the lifetime of the firm.
The realization Account is only made once during the dissolution of the firm.
The gain or loss during revaluation is transferred to the old partner’s capital accounts.
The gain or loss during realization is transferred to the capital account of all the partners.
Under GST, Input Tax Credit (ITC) refers to the tax already paid by a person on input, which is available as a deduction from tax payable on output. This means that if you have paid tax on some purchases, then at the time of paying tax on the sale of goods, you can reduce it by the amount you alreadRead more
Under GST, Input Tax Credit (ITC) refers to the tax already paid by a person on input, which is available as a deduction from tax payable on output. This means that if you have paid tax on some purchases, then at the time of paying tax on the sale of goods, you can reduce it by the amount you already paid on purchase and pay only the balance amount.
EXAMPLE
Suppose Ashok purchased goods worth Rs 100 while paying tax at 10%, that is Rs 10. He now sold the goods for Rs 200, with a tax payable of Rs 20. Now, Ashok can avail input tax credit of Rs 10 that he already paid for the purchase and hence the net tax payable is Rs 10 (20-10).
METHOD OF UTILISATION OF ITC
The central government collects CGST, SGST, UTGST or IGST based on whether the transactions are done intrastate or interstate.
The amount of input tax credit on IGST is first used for paying IGST and then utilised for the payment of CGST and SGST or UTGST. Similarly, the amount of ITC relating to CGST is first utilised for payment of CGST and then for the payment of IGST. It is not used for the payment of SGST or UTGST. Meanwhile, the amount of ITC relating to SGST is utilised for payment of SGST or UTGST and then for the payment of IGST. Such amounts are not used for payment of CGST.
We can see how Input Tax Credit is used from the below example and table:
The correct option is (A) Original. Journal entry is the book of the original entry. It is because every event or transaction which is of monetary nature is first recorded in the journal. The transactions recorded in the journal are known as journal entries. Journal follows the double-entry system oRead more
The correct option is (A) Original. Journal entry is the book of the original entry. It is because every event or transaction which is of monetary nature is first recorded in the journal. The transactions recorded in the journal are known as journal entries.
Journal follows the double-entry system of accounting. It means a journal entry affects at least two accounts. It is from the journal entries, the ledger accounts are prepared. For example, the transaction, ‘sale of goods for Rs 1000 for cash’ affects two accounts. The journal entry is:
There are many special journals that record some special set of transactions which are called subsidiary journals or daybooks. Such special journals are not considered the books of original entry.
Option (B) Duplicate is wrong. It is because the journal is the book where monetary events and transactions are recorded. It cannot be the book of duplicate entries. There is no such thing as ‘book of duplicate entry.’
Option (C) Personal is wrong. Personal is a type of account under the golden rules of accounting. A personal account is a type of account that represents a person. But, the journal is not an account, it is a book. Also, there is no such thing as book of personal entry.
Option (D) Nominal is wrong. Nominal is also a type of account under the golden rules of accounting. The nominal account is a type of account that represents an income, expense, gain or loss. Journal is a type of account but a book.
Capital maintenance is a principle that states profit should not be recorded until its cost or capital has been maintained. In other words, profit should not be recognized unless net assets have been maintained. Capital maintenance states that profit recognized is the increase in the value of net asRead more
Capital maintenance is a principle that states profit should not be recorded until its cost or capital has been maintained. In other words, profit should not be recognized unless net assets have been maintained.
Capital maintenance states that profit recognized is the increase in the value of net assets. However, there are two exceptions to it:
Cash increased because of sale of stock to shareholders
Cash decreased because of dividend payout to its shareholders
It is important because:
It protects the interest of shareholders
It protects the interest of creditors
Accurately analyzing the performance of the company
Capital maintenance is of two types:
Financial Capital Maintenance
It is measured by the value of assets at the beginning and end of the financial year.
Physical Capital Maintenance
It is measured by the production capacity at the beginning and end of the financial year.
Capital maintenance is concerned with keeping proper account balances of assets and not the physical assets.
Inflation is the increase in the economic value of goods due to the lower purchasing power and not an actual increase in the value of assets. So, if the value of an asset is increased due to inflation it does not depict the right picture for the company.
Hence, if the value of assets increases due to inflation, companies need to adjust the value of assets to assess if capital maintenance has occurred.
Financial Reporting is a common practice in accounting where the financial statements of the company are disclosed to present its financial information and performance over a particular period. It is important to know where a company’s money comes from and where it goes. Types of Financial StatementRead more
Financial Reporting is a common practice in accounting where the financial statements of the company are disclosed to present its financial information and performance over a particular period. It is important to know where a company’s money comes from and where it goes.
Types of Financial Statements
There are 4 important types of financial statements such as:
Income Statement: This statement summarises a company’s revenue, expenses and profits. It is prepared to calculate the net profit of the company.
Balance Sheet: It portrays the company’s assets and liabilities in a statement. This is used to understand the financial position of the company.
Statement of Retained Earnings: This statement reveals a company’s changes in equity during an accounting period.
Cash Flow Statement: It shows the amount of cash flowing in and out of the business. It is helpful in understanding the liquidity position of the business.
Importance of Financial Reporting
Understanding these financial statements is helpful in making financial decisions. One can identify certain trends and hurdles while analyzing financial statements.
It helps the top order management to keep a check on its outstanding debt and how to manage them effectively.
Financial reports are also required to be prepared by law for tax purposes. Therefore these statements have to be prepared to calculate taxable income. It also ensures that the companies are compliant with the required laws and regulations.
True and accurate financial reporting is also important for potential investors who need to understand the financial performance and position to come to a decision.
An asset is a resource in the name of the company or controlled by the company that holds economic value and will provide it future benefits. A company invests in various kinds of assets for manufacturing purposes and investment purposes as well. Some examples of assets are: Plant and Machinery InveRead more
An asset is a resource in the name of the company or controlled by the company that holds economic value and will provide it future benefits.
A company invests in various kinds of assets for manufacturing purposes and investment purposes as well. Some examples of assets are:
Plant and Machinery
Investments
Inventory
Cash and Cash Equivalents, etc.
Assets can be broadly divided into two categories based on their physical existence:
Tangible Assets
Intangible Assets
Tangible Assets can be further divided into two categories based on their life and role in the operating cycle:
Non-Current Assets
Current Assets
Since the company derives benefit from the asset, an asset account is debit in nature. If an asset account has a credit balance, it would fundamentally make it a liability. However, there are certain exceptions to it.
In the case of Bank Overdraft, which means a company withdraws more from the bank than it has deposited in its account, Bank Account can also be shown having a credit balance.
Contra Assets Accounts are the accounts that are contrary to the basic nature of an assets account, that is it is contrary to the debit nature of the assets account and hence are credit in nature.
Examples of Contra Assets Account are:
Accumulated Depreciation Account which is essentially Plant Assets Account also has a credit balance as it is used to depreciate the asset, or in other words, reduce the value of the assets, hence it also has a credit balance.
When there are balances in the Account Receivables Account that are not paid to the company or have a very low probability of being paid, they are recorded in a separate account called Bad Debts Account, which is also credit in nature.
How to show format of balance sheet as per companies act 2013?
A balance sheet of a company is a financial statement that depicts the assets, liabilities and shareholders’ equity of the company at a point of time, usually at the end of the accounting year. A balance sheet of a company is reported in a vertical format which is different from that of a partnershiRead more
A balance sheet of a company is a financial statement that depicts the assets, liabilities and shareholders’ equity of the company at a point of time, usually at the end of the accounting year. A balance sheet of a company is reported in a vertical format which is different from that of a partnership where the horizontal format is used.
COMPONENTS OF A BALANCE SHEET
The three main components of a balance sheet are Assets, Liabilities and Shareholders’ equity.
FORMAT OF BALANCE SHEET
As per the Companies Act 2013, the following format should be used for preparing a balance sheet.
From the above Balance sheet, we should get:
Assets = Liabilities + Shareholders’ Equity
Relevant notes for each component should also be prepared when necessary.
See lessDifference between revaluation account and realization account?
A revaluation Account is an account created to record the changes in the value of assets and liabilities during: Change in profit sharing ratio Admission of a partner Retirement of a partner Death of a partner The realization Account is prepared to sell assets and pay liabilities in the event of theRead more
A revaluation Account is an account created to record the changes in the value of assets and liabilities during:
The realization Account is prepared to sell assets and pay liabilities in the event of the dissolution of the firm.
Revaluation Account is prepared for dissolution of the partnership while Realization Account is prepared for dissolution of the partnership firm.
The increase or decrease in the value of assets and liabilities is transferred to the Realisation Account and the gain or loss thereof is transferred to the old partner’s capital account.
Format of Revaluation Account will be:
Format of Realization Account will be:
The difference between Realisation and Revaluation Account is:
See lessWhat is input tax credit example?
Under GST, Input Tax Credit (ITC) refers to the tax already paid by a person on input, which is available as a deduction from tax payable on output. This means that if you have paid tax on some purchases, then at the time of paying tax on the sale of goods, you can reduce it by the amount you alreadRead more
Under GST, Input Tax Credit (ITC) refers to the tax already paid by a person on input, which is available as a deduction from tax payable on output. This means that if you have paid tax on some purchases, then at the time of paying tax on the sale of goods, you can reduce it by the amount you already paid on purchase and pay only the balance amount.
EXAMPLE
Suppose Ashok purchased goods worth Rs 100 while paying tax at 10%, that is Rs 10. He now sold the goods for Rs 200, with a tax payable of Rs 20. Now, Ashok can avail input tax credit of Rs 10 that he already paid for the purchase and hence the net tax payable is Rs 10 (20-10).
METHOD OF UTILISATION OF ITC
The central government collects CGST, SGST, UTGST or IGST based on whether the transactions are done intrastate or interstate.
The amount of input tax credit on IGST is first used for paying IGST and then utilised for the payment of CGST and SGST or UTGST. Similarly, the amount of ITC relating to CGST is first utilised for payment of CGST and then for the payment of IGST. It is not used for the payment of SGST or UTGST. Meanwhile, the amount of ITC relating to SGST is utilised for payment of SGST or UTGST and then for the payment of IGST. Such amounts are not used for payment of CGST.
We can see how Input Tax Credit is used from the below example and table:
See lessJournal is a book of which entry?
The correct option is (A) Original. Journal entry is the book of the original entry. It is because every event or transaction which is of monetary nature is first recorded in the journal. The transactions recorded in the journal are known as journal entries. Journal follows the double-entry system oRead more
The correct option is (A) Original. Journal entry is the book of the original entry. It is because every event or transaction which is of monetary nature is first recorded in the journal. The transactions recorded in the journal are known as journal entries.
Journal follows the double-entry system of accounting. It means a journal entry affects at least two accounts. It is from the journal entries, the ledger accounts are prepared. For example, the transaction, ‘sale of goods for Rs 1000 for cash’ affects two accounts. The journal entry is:
There are many special journals that record some special set of transactions which are called subsidiary journals or daybooks. Such special journals are not considered the books of original entry.
Option (B) Duplicate is wrong. It is because the journal is the book where monetary events and transactions are recorded. It cannot be the book of duplicate entries. There is no such thing as ‘book of duplicate entry.’
Option (C) Personal is wrong. Personal is a type of account under the golden rules of accounting. A personal account is a type of account that represents a person. But, the journal is not an account, it is a book. Also, there is no such thing as book of personal entry.
Option (D) Nominal is wrong. Nominal is also a type of account under the golden rules of accounting. The nominal account is a type of account that represents an income, expense, gain or loss. Journal is a type of account but a book.
See lessWhat is capital maintenance?
Capital maintenance is a principle that states profit should not be recorded until its cost or capital has been maintained. In other words, profit should not be recognized unless net assets have been maintained. Capital maintenance states that profit recognized is the increase in the value of net asRead more
Capital maintenance is a principle that states profit should not be recorded until its cost or capital has been maintained. In other words, profit should not be recognized unless net assets have been maintained.
Capital maintenance states that profit recognized is the increase in the value of net assets. However, there are two exceptions to it:
It is important because:
Capital maintenance is of two types:
It is measured by the value of assets at the beginning and end of the financial year.
It is measured by the production capacity at the beginning and end of the financial year.
Capital maintenance is concerned with keeping proper account balances of assets and not the physical assets.
Inflation is the increase in the economic value of goods due to the lower purchasing power and not an actual increase in the value of assets. So, if the value of an asset is increased due to inflation it does not depict the right picture for the company.
Hence, if the value of assets increases due to inflation, companies need to adjust the value of assets to assess if capital maintenance has occurred.
See lessWhat is the importance of financial reporting?
Financial Reporting is a common practice in accounting where the financial statements of the company are disclosed to present its financial information and performance over a particular period. It is important to know where a company’s money comes from and where it goes. Types of Financial StatementRead more
Financial Reporting is a common practice in accounting where the financial statements of the company are disclosed to present its financial information and performance over a particular period. It is important to know where a company’s money comes from and where it goes.
Types of Financial Statements
There are 4 important types of financial statements such as:
Importance of Financial Reporting
See lessCan assets ever have a credit balance?
An asset is a resource in the name of the company or controlled by the company that holds economic value and will provide it future benefits. A company invests in various kinds of assets for manufacturing purposes and investment purposes as well. Some examples of assets are: Plant and Machinery InveRead more
An asset is a resource in the name of the company or controlled by the company that holds economic value and will provide it future benefits.
A company invests in various kinds of assets for manufacturing purposes and investment purposes as well. Some examples of assets are:
Assets can be broadly divided into two categories based on their physical existence:
Tangible Assets can be further divided into two categories based on their life and role in the operating cycle:
Since the company derives benefit from the asset, an asset account is debit in nature. If an asset account has a credit balance, it would fundamentally make it a liability. However, there are certain exceptions to it.
In the case of Bank Overdraft, which means a company withdraws more from the bank than it has deposited in its account, Bank Account can also be shown having a credit balance.
Contra Assets Accounts are the accounts that are contrary to the basic nature of an assets account, that is it is contrary to the debit nature of the assets account and hence are credit in nature.
Examples of Contra Assets Account are:
Accumulated Depreciation Account which is essentially Plant Assets Account also has a credit balance as it is used to depreciate the asset, or in other words, reduce the value of the assets, hence it also has a credit balance.
When there are balances in the Account Receivables Account that are not paid to the company or have a very low probability of being paid, they are recorded in a separate account called Bad Debts Account, which is also credit in nature.
See less