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PRACTICE ECONOMICS…2
Ms Rosmin Bt Iqbal Hussain
BOptom (UKM), CMBA (UNIMAS)
Introduction
• Hi! We continue on to Balance Sheet!!!
BALANCE SHEET
What is a Balance sheet?
• The balance sheet is a financial statement
• It is a list of all the assets (what the business owns) and all the liabilities (what the business owes) of a business
The balance sheet is a financial “snap shot”
• It lists the assets and liabilities of the business on a particular day
Balance Sheet• A snapshot of the firm’s position
at a point in time• Shows what a company owns (assets)
and what it owes (liabilities)• Balance Sheet shows what assets a
company has (use of funds) and where the money came from to acquire those assets (source of funds)
Balance Sheet• A guide to the structure of the assets of a
company• A guide to the level of gearing – the ratio of
loan to share capital• Gives a guide as to the degree of working
capital – the amount the company has to be able to pay its everyday debts (current assets – current liabilities)
• Shows the total value of a firm at that moment in time
Total Fixed Assets
Land & Building
+ Vehicles
Fixed Asset
ADD Long Term Investments ( > 1 year)
X
X
(X)
(X)
X
+ X
XXX
+ XX
Current Assets
LESS Current Liabilities
ADD NETT Current Assets / Liabilities
X
(X)
+ XX
LESS Long term Liabilities ( > 1year)
XXX
(XX)
XXXX
Financed By:
Capital
Less Drawing
Nett Profit / Loss
XXX
(XX)
XXX
XXXX
AD NBV
minus
Cost
Value in Bracket ( ) indicate a negative value- need to subtract it
Must balance*same value
Fixed Assets• Inclusive of:
– Land & building– Vehicles– Machineries– Furniture & Fitting & etc
Cost of each of this Fixed Asset - its Accumulated Depreciation = Net Book Value
(AD) (NBV)
Add all the NBV of each = Total Fixed Tangible Asset Total Fixed Asset = Total Fixed Tangible Assets + Long Term Investments
Also a type of fixed asset
Total Fixed Assets
Land & Building
+ Vehicles
TOTAL Asset
ADD Long Term Investments
( > 1 year)
X
X
(X)
(X)
X
+ X
XXX
+ XX
Current Assets• Refers to any assets that can be liquidified in one
financial year– Stock (closing stock)– Net Debtors– Bank– Cash– Prepaid expenses (only the amt of bills paid forefront)
– Accrual received (income received + balance of income that will be paid later which is not yet received) e.g tenant has half rental deposit left to pay, this unpaid value yet must be included
Net debtors = debtors minus provision for doubtful debts (bad debts)• Also known as trade receivables, trade debtors, account receivables or just debtors (its
understood any amt of debtors must minus out bad debts
Accrual = pending balance to be paidPrepaid = paid beforehand
Current Liabilities
• Refers to:– Creditors (short term)– Bank Overdraft– Accrued expenses (only the amt not paid yet, or amt pending
but not shown in the bill)
– Prepaid revenue (only the amt that has been prepaid by customers)
Accrual = pending balance to be paidPrepaid = paid beforehand
Net Current Asset / Liability
• Equals to Net Current Asset = Current Assets - Current Liabilities
or Liabilities
It is net current asset when asset value > liabilities value
It is net current liabilities when asset value < liabilities value
Therefore, net current asset/liabilities is negative value when indicated in brackets & actually refers to liabilities being surplus. Positive value without brackets refer to assets being surplus
Net Current Asset / Liability… cont
Current Assets
LESS Current Liabilities
NETT Current Assets / Liabilities
X
(X)
XX
Current Assets
LESS Current Liabilities
NETT Current Assets / Liabilities
X
(X)
(XX)
1. Positive value - therefore it refers to net current assets
2. Negative value - therefore it refers to net current liabilities
Notice that net current asset/liabilities = CA - CL
Balance Sheet Value…1
TFA + (NCL) or NCA + (LTL) = BSV
TFA = total fixed assets
NCL = net current liabilities; note brackets indicating -ve value bcoz it is a liability to the company
NCA = net current assets
LTL = long term liabilities; note brackets indicating -ve value bcoz it is a liability to the company
BSV = balance sheet value
BALANCE SHEET VALUETotal Fixed Assets
Land & Building
+ Vehicles
Fixed Asset
ADD Long Term Investments ( > 1 year)
Total Fixed Assets
X
+ X
XXX
+ XX
XXX
ADD NETT Current Assets / Liabilities
(Current Asset - Current Liabilities)
+ XX
LESS Long term Liabilities ( > 1year)
BALANCE SHEET VALUE (net assets)
XXX
(XX)
XXXX
Financed By:
Capital
Less Drawing
Nett Profit / Loss
BALANCE SHEET VALUE (amt invested in co)
XXX
(XX)
XXX
XXXX
BALANCE SHEET VALUE…2
Capital + (Drawing) - Net profit or (Net Loss) = BSV2
BSV 1 = BSV 2 Must equal!!
Notice Net loss in bracket indicative of -ve value
Trial / Balance As At (date)Debit Credit
Trial / Balance
• Involves all the items, transactions & values in the TPL & BS
• Just put each into the credit / debit location
• All -ve values in the credit portion is shifted to the debit portion (the -ve sign is dropped)
Balance SheetTotal Fixed Assets
Land & Building
+ Vehicles
Fixed Asset
ADD Long Term Investments ( > 1 year)
X
+ X
XXX
+ XX
Current Assets
LESS Current Liabilities
ADD NETT Current Assets / Liabilities
X
(X)
+ XX
LESS Long term Liabilities ( > 1year)
XXX
(XX)
XXXX
Financed By:
Capital
Less Drawing
Nett Profit / Loss
XXX
(XX)
XXX
XXXX
minus
Must balance*same value
Trading Profit & Loss Acct
Sales
Less Sales Return / Return Inward
Less Cost of Goods Sold
X
X
X
= Gross Profit x
Add Other Revenue / Income X
Less Expenses / Overheads x
= Net Profit / Loss x
Debit Credit
END• This completes my
lesson on economics! I hope you enjoyed the tour. Economics is an important part of our lives. Think of all of the ways you use economics everyday!
Goodbye!
NOTES
CURRENT ASSETS
• Current assets mean that the assets will not stay in the business for long
• Examples: materials, debtors, money in the bank, petty cash
CURRENT LIABILITIES
• The amount of money that a business owes other people and other businesses (creditors)
• Liabilities are “current” because the amount owed can vary from one day to the next
• They must be paid back within a year
NET CURRENT ASSETS
• ASSETS minus LIABILITIES
(current & fixed) (current)
LONG TERM LIABILITIES
• These are debts need paying back in the future (one year +)
• Examples: Loans, mortgages
NET ASSETS
• ASSETS minus LIABILITIES (current & fixed) (Current & fixed)
The second section of the balance sheet
• This looks at where the money which was used to buy the long term and short term assets came from
The start up of the business is funded by:
CAPITAL & RESERVES• SHARE CAPITAL – The amount of money
paid by shareholders in return for a share in the business.
• PROFIT & LOSS ACCOUNT – Net profit from the previous financial year is transferred into the balance sheet.
• RETAINED PROFIT – businesses do not give all of their profits back to shareholder
• NET ASSETS SHOULD EQUAL THE AMOUNT OF MONEY THAT HAS BEEN INVESTED IN THE BUSINESS
• BOTH PARTS OF THE BALANCE SHEET MUST BALANCE
MaterialsInventory
FinishedGoods
Inventory
Revenues
Cost ofGoods Sold
INCOME STATEMENT
PeriodCosts
InventoriableCosts
BALANCE SHEET
Equals Operating Income
whensalesoccur
deduct
Equals Gross Margindeduct
Work inProcess
Inventory
Manufacturing Company
Merchandising Company
INCOME STATEMENTBALANCE SHEET
whensalesoccur
InventoriableCosts
MerchandisePurchases Inventory
Revenuesdeduct
Cost ofGoods Sold
Equals Gross Margindeduct
PeriodCosts
Equals Operating Income
END