Basic Online Bookkeeping & Accounting Guide » Balance Sheet http://bookkeeping.a-z-finance.net Learn Simple Double Entry Bookkeeping & Basic Accounts Fri, 15 Oct 2010 16:33:49 +0000 en hourly 1 http://wordpress.org/?v=3.0.1 How To Prepare the Horizontal And Vertical Presentation Format Of Balance Sheet http://bookkeeping.a-z-finance.net/how-to-prepare-the-horizontal-and-vertical-presentation-format-of-balance-sheet/ http://bookkeeping.a-z-finance.net/how-to-prepare-the-horizontal-and-vertical-presentation-format-of-balance-sheet/#comments Fri, 11 Sep 2009 02:34:23 +0000 slang http://bookkeeping.a-z-finance.net/?p=176 As discussed earlier on the two formats of Income statement, similarly we have two formats normally prepared by bookeepers for their companies.

Before preparing the format we need to understand that a Balance Sheet is called the Statement of Financial Position. as it is a snapshot of a company’s financial position at a particular point in time. The Accounting equation which is Assets=Liabilities+Stockholder’s Equity is closely link to the Balance Sheet. Because of this accounting equation and the double entry system, the Balance sheet must always tally.  

Below we have two formats namely the Horizontal and Vertical Presentation to display the Balance sheet of a company:- 

(a)Format of A Balance Sheet: Horizontal Presentation 

The horizontal presentation uses a format that present assets on the left and liabilities and equity on the right 

XYZ Company

Balance Sheet As at December 31st 2008 

 

Assets

 

Liabilities & Stockholders’ Equity

  
 

$

 

$
Current Assets

 

 Current Liabilities  
Cash

10,000

Accounts payable

15,000
Accounts Receivable

20,000

Salaries Payable

9,000
Inventories

30,000

Total Current Liabilities

24,000
Deposits, prepayments

5,000

 Bonds payable

20,000
Total Current Assets

65,000

 Mortgages

35,000
 

 

 Total Liabilities

79,000
 

 

 Stockholders’ equity

 
Property, plant and equipment, net

55,000

 Common stock

50,000
Intangible assets

10,000

Retained earnings

1,000
Total Assets

130,000

 Total Liabilities and Stockholders’ equity

130,000

(b) The Vertical Presentation of The Format Of A Balance Sheet

 The vertical presentation show the assets followed by liabilities and equity directly below the assets.

 XYZ Company

Balance Sheet As At 31 st December 2008 

Assets

 
Current Assets

 
Cash

10,000
Accounts Receivable

20,000
Inventories

30,000
Deposits, prepayments

5,000
Total Current Assets

65,000
 

 
Non Current Assets

 
Property, plant and equipment, net

55,000
Intangible assets

10,000
Total Non Current Assets

65,000
Total Assets

130,000
Liabilities & Stockholders’ Equity  

 

$
Current Liabilities

 
Accounts payable

15,000
Salaries Payable

9,000
Total Current Liabilities

24,000
 

 
Non Current Liabilities

 
Long Term Bonds payable

20,000
Mortgages

35,000
Total Non Current Liabilities

55,000
Total Liabilities

79,000
Stockholders’ equity

 
Common stock

50,000
Retained earnings

1,000
Total Liabilities and Stockholders’ equity

130,000
]]> http://bookkeeping.a-z-finance.net/how-to-prepare-the-horizontal-and-vertical-presentation-format-of-balance-sheet/feed/ 0 Snapshot of how to prepare the Income statement,Owner’s equity statement and Balance sheet statement http://bookkeeping.a-z-finance.net/snapshot-of-how-to-prepare-the-income-statementowners-equity-statement-and-balance-sheet-statement/ http://bookkeeping.a-z-finance.net/snapshot-of-how-to-prepare-the-income-statementowners-equity-statement-and-balance-sheet-statement/#comments Fri, 11 Sep 2009 02:20:14 +0000 slang http://bookkeeping.a-z-finance.net/?p=169 Append below, a simple snapshot of preparing the following financial statements:

(a) How to prepare the Income Statement:

  • All temporary or nominal accounts relating to incomes and expenses are closed by using closing entries and transferred to the Income Statement/Summary

Journalize the closing entries as follows:

For all Revenue accounts:

  • Debit Revenue Account Credit Income Summary

For all Expenses accounts:

  • Debit Income Summary Credit Expense Account

(b) How to prepare Owner’s Equity Statement:

  • From (a) the Income statement is transferred to the Owner’s Equity Statement

For Profit in the Income Summary:

  • Debit Income Summary Credit Owner’s Capital

For Loss in the Income Summary:

  • Debit Owner’s Capital Credit Income Summary

 

  • The Owner’s drawing account which is part of temporary/nominal account is similarly closed by using closing entry and transferred to the Owner’s Equity Statement

Accounting entries:

  • Debit Owner’s Capital Credit Drawings Account

(c) How to prepare the Balance Sheet:

  • All permanent or real accounts like all asset accounts, all liability accounts and owner’s capital account are not closed and transfer to the Balance Sheet(refer to vertical and horizontal format)
]]> http://bookkeeping.a-z-finance.net/snapshot-of-how-to-prepare-the-income-statementowners-equity-statement-and-balance-sheet-statement/feed/ 0 Share Capital In The Balance Sheet http://bookkeeping.a-z-finance.net/share-capital-in-the-balance-sheet/ http://bookkeeping.a-z-finance.net/share-capital-in-the-balance-sheet/#comments Sat, 03 Nov 2007 13:00:56 +0000 slang http://bookkeeping.a-z-finance.net/share-capital-in-the-balance-sheet/ In the Balance Sheet, one key category is the Share Capital. At times, we might get confuse with the various classification of share capital.

Tabulate below the various terms used to classify capital namelyauthorized/nominal share capital,issued share capital, subscribed, called-up and uncalled-up capital and finally the paid-up capital:

AUTHORISED SHARE CAPITAL

Authorised share capital is also called Nominal share capital

This the total amount of share capital stated in the Memorandum of Association of a limited company. It also states how the share capital is divided into individual shares of a set amount, such as $1 a share.

The authorized share capital represents the maximum amount of capital the company is allowed to raise from the public, through the issue of shares.

There are no upper or lower limits on authorised share capital for private limited companies, but a public limited company must have a certain minimum authorised share capital. ( varies in different countries )

A company can increase its authorised share capital by passing an ordinary resolution at a general meeting. Equally, a company can decrease its authorised share capital by passing an ordinary resolution to cancel some shares – this is called ˜diminution of capital” or share capital reduction.

 

WHAT IS ISSUED CAPITAL, SUBSCRIBED, CALLED-UP, UNCALLED-UP & PAID-UP CAPITAL?
Issued capital comprises that part of the authorised share capital that has actually been offered to the public for subscription and has been actually allotted the subscribers. It can be issued other than for cash and those issued for cash.Subscribed capital comprises the amount of issued shares subscribed by the public. If the shares issued have been fully subscribed, then subscribed capital is equal to issued capital

Called-up capital comprises that part of issued capital where the company has called up for the subscribers to pay up the money and

Uncalled-up capital comprise that part of issued capital which has not yet been called up.

Paid-up Capital is the amount of called-up capital that has been paid up by the shareholders. When a shareholder fails to pay the sum due when a call is made, the amount outstanding is called Calls in Arrear

 

 

DIFFERENCE BETWEEN AUTHORISED AND ISSUED SHARE CAPITAL?
The main difference between the authorised and issued share capital represents the number and value of shares that the company can issue should it need to raise further capital.The issued share capital cannot exceed the authorized or nominal share capital although companies can increase their authorized or nominal share capital if they need to.

ILLUSTRATION
XYZ Ltd has a nominal capital of 5,000,000 shares of $1 each. It issues 1,500,000 shares to the public, payable at 90 cents per share upon subscription. The shares are fully subscribed and the called-up shares are fully paid.Question: Show the classification of XYZ Ltd’s share capitalAuthorised capital: $5,000,000 shares of $1 each 5,000,000Issued capital and subscribed capital:1,500,000 shares of $1 each 1,500,000Called-up capital, fully paid:1,500,000 shares at 90 cents per share 1,350,000

Uncalled-up capital:

1,500,000 shares at 10 cents per share 150,000
]]> http://bookkeeping.a-z-finance.net/share-capital-in-the-balance-sheet/feed/ 0 Understanding Reserves in The Balance Sheet(Part2of2) http://bookkeeping.a-z-finance.net/understanding-reserves-in-the-balance-sheetpart2of2/ http://bookkeeping.a-z-finance.net/understanding-reserves-in-the-balance-sheetpart2of2/#comments Sat, 03 Nov 2007 12:48:21 +0000 slang http://bookkeeping.a-z-finance.net/understanding-reserves-in-the-balance-sheetpart2of2/ Let understand what’s reserves:-

RESERVES

Reserves are appropriations of profit namely when profits have been ascertained after deducting all expenses which includes provision and others. Reserves are residual earnings after all expenses and taxation which belongs to the owners namely the shareholders.

There are essentially two(2) types of Reserves:

·         Capital Reserves

·         Revenue Reserves

WHAT ARE CAPITAL RESERVES?

Capital Reserves:

·         Are appropriation from profits ( refer above) which cannot be distributed by way of cash dividends.

·     These capital reserves arises mainly from

·     (i) equity transactions between the enterprise and its shareholders;

·     (ii) from adjustments arising in accounting for business combinations;

·     (iii) from differences arising on translation of foreign currency operations;

·     (iv) from surpluses arising from asset revaluation;

·     (iv) any unrealized gain which has not been included in income.

Examples of capital reserves includes: share premium, capital redemption reserves, capital reserves arising on merger and acquisition, statutory reserves, asset revaluation reserve and exchange fluctuation reserves.

WHAT ARE REVENUE RESERVES?

Revenue Reserves are:

·         Are appropriation from profit ( refer above) which can be distributed by way of cash dividends although some may be set aside for other purposes.

Examples like retained profits and general reserves

SUMMARY: TO RECAP FOR OWNER’S EQUITY SIDE OF THE BALANCE SHEET

Balance Sheet And Its Owners’ Equity Side consists of :P aid In Capital + Capital Reserves + Revenue Reserves

 

 

 

 

]]> http://bookkeeping.a-z-finance.net/understanding-reserves-in-the-balance-sheetpart2of2/feed/ 0 Capital Side Of The Balance Sheet(Part1of2) http://bookkeeping.a-z-finance.net/capital-side-of-the-balance-sheetpart1of2/ http://bookkeeping.a-z-finance.net/capital-side-of-the-balance-sheetpart1of2/#comments Sat, 03 Nov 2007 12:43:45 +0000 slang http://bookkeeping.a-z-finance.net/capital-side-of-the-balance-sheetpart1of2/ If you refer to below accounting equation, owner’s equity form one of the three key elements of a Balance Sheet.

Let understand &/define Owner’s Equity:

DEFINE OWNERS’ EQUITY:

 

Looking at the equation:

Assets= Liabilities + Owners’ Equity

However, if we change it to :

Owners’ Equity= Assets-Liabilities

(Assets=what the entity owns & Liabilities=what the entity owes)

In this case, we can see that the owners’ equity is the residual after total assets minus the liabilities relating to the acquiring the assets. Owners’ equity is the paid-up capital plus free reserves and retained earnings or undistributed profits

Here, we can understand that Owners’ equity can also be called the NET WORTH of the business namely whatever belonging to the owners of the business.

 

WHAT ARE THE MAJOR COMPONENTS OF THE OWNERS’ EQUITY?

Comprises:

1. Paid Up Capital

2. Capital Reserves or Non-Distributable Reserves

3. General Reserves or Distributable Reserves

]]> http://bookkeeping.a-z-finance.net/capital-side-of-the-balance-sheetpart1of2/feed/ 1 Long Term Liabilities Of The Balance Sheet(Part3of3) http://bookkeeping.a-z-finance.net/long-term-liabilities-of-the-balance-sheetpart3of3/ http://bookkeeping.a-z-finance.net/long-term-liabilities-of-the-balance-sheetpart3of3/#comments Sat, 03 Nov 2007 12:40:12 +0000 slang http://bookkeeping.a-z-finance.net/long-term-liabilities-of-the-balance-sheetpart3of3/ In this Part 3, let’s look at what are really long term liabilities in a typical Balance Sheet:

 LONG TERM LIABILITES ARE:

Long Term Liabilities:

  • Is opposite of current liabilities which are more than 12 months from the date of the balance sheet.

Examples are:

  • Long term debts /fixed term loan

Remember that we need to classify the total debts into two(2) parts:

  • Current portion of long-term debts( amount owing within 12 months of balance sheet date and
  • Non-current portion namely More than 12 months of balance sheet date
  • Also, the current portion of the long term debts is to be classify as Current Liabilities whilst the non-current portion is in the Long Term Liabilities

 

 

SUMMARY: TO RECAP FOR LIABILITIES SIDE OF THE BALANCE SHEET

 

Balance Sheet And Its Liabilities Side (Total Liabilities) consists of :

Current Liabilities +Long Term Liabilities

 

]]> http://bookkeeping.a-z-finance.net/long-term-liabilities-of-the-balance-sheetpart3of3/feed/ 0 Current Liabilites In The Balance Sheet(Part2of3) http://bookkeeping.a-z-finance.net/current-liabilites-in-the-balance-sheetpart2of3/ http://bookkeeping.a-z-finance.net/current-liabilites-in-the-balance-sheetpart2of3/#comments Sat, 03 Nov 2007 12:37:04 +0000 slang http://bookkeeping.a-z-finance.net/current-liabilites-in-the-balance-sheetpart2of3/ In this Part 2, let’s understand what are current liabilities:

CURRENT LIABILITIES ARE:-

Obligations/liabilities:

  • that is expected to be settled in the normal course of the enterprise’s operating cycle ; or

  • Is due to be settled within twelve months of the balance sheet date

 

Current Liabilities

Description

Accounts payable

Claims of suppliers arising from their providing goods or services to the entity for which they have not been paid

Accrued expenses

Amounts earned by outside parties but have not been paid by the entity

Deferred revenues

Liabilities that arise because the entity receives advanced payments for services it has agreed to render in the future

Taxes Payable

Amount owed to government agencies

Other Creditors

Amounting owing by the entity to non-Accounts payables like staff and others

Short term loan

Debts that are payable within 12 months of the balance sheet date
]]> http://bookkeeping.a-z-finance.net/current-liabilites-in-the-balance-sheetpart2of3/feed/ 0 Liabilities Side Of The Balance Sheet(Part1of3) http://bookkeeping.a-z-finance.net/liabilities-side-of-the-balance-sheetpart1of3/ http://bookkeeping.a-z-finance.net/liabilities-side-of-the-balance-sheetpart1of3/#comments Sat, 03 Nov 2007 12:34:35 +0000 slang http://bookkeeping.a-z-finance.net/liabilities-side-of-the-balance-sheetpart1of3/ This Part 1 explains what’s liabilities the component of the total liabilities side of a typical Balance Sheet:

As explained earlier a BALANCE SHEET is:-

A snapshot of the financial position of an entity.This snapshot is at a point of time.

Say, as at 7 May 2006, you look at Company A’s balance sheet, it reflects the financial position as at that day. After that day, the financial position company A  can change to a better or worse situation.

In the Balance Sheet, we have the three (3) key components:

Assets= LIABILITIES + Owner’s Equity

( Refer to my illustration for the Dual Aspect Concept)

LET’S DEFINE WHAT ARE THE CHARACTERISTIC OF LIABILITIES?

  • Future transfer or use of assets the entity has no discretion to avoid it

  • Transaction already happened

WHAT ARE THE MAJOR COMPONENTS OF THE TOTAL LIABILITIES?

Comprises:

1. Current Liabilities and

2. Long Term Liabilities
]]> http://bookkeeping.a-z-finance.net/liabilities-side-of-the-balance-sheetpart1of3/feed/ 0 Assets(Non-Current) Side of The Balance Sheet(Part3of3) http://bookkeeping.a-z-finance.net/assetsnon-current-side-of-the-balance-sheetpart3of3/ http://bookkeeping.a-z-finance.net/assetsnon-current-side-of-the-balance-sheetpart3of3/#comments Sat, 03 Nov 2007 10:02:26 +0000 slang http://bookkeeping.a-z-finance.net/assetsnon-current-side-of-the-balance-sheetpart3of3/ This last part of the article deals with non-current assets of a Balance Sheet. They consists of the Fixed Assets and Long Term Investments.

Let understand the following:

WHAT ARE FIXED ASSETS

Fixed Assets are unlike current assets:

  • Which are NOT expected to be realised  or held for trading or sale

  • The costs of the fixed assets are allocated over the period of the useful lives to generate the income associate with it. This follows closely to the matching concept.

  • Examples of Fixed Assets are:
  • Property
  • Plant & machinery
  • Motor Vehicles
  • Furniture & Fixtures
  • Air-conditioners
  • Office Rennovations

 

WHAT ARE LONG TERM INVESTMENTS?

Long Term investments are:

  • investments a company intends to hold for more than one year.Consist of stocks and bonds of other companies, real estate, and cash that has been set aside for a specific purpose or project.

  • also consist of the stock in a company’s affiliates and subsidiaries.

The difference between Short Term and Long Term investments lie in the company’s motive for owning them.

Short term investments consist of stocks, bonds, etc. a company has bought and will sell shortly. The investments made under long term investments may never be sold

 

WHAT ARE INTANGIBLE ASSETS?

Intangible assets:

  • have no physical existence and a long life. They include patents, copyrights, trademarks, etc.

 

SUMMARY: TO RECAP FOR ASSET SIDE OF THE BALANCE SHEET

         Balance Sheet And Its Assets Side (Total Assets) consists of :

Current Assets+ Fixed Assets +Long Term Investments + Intangible Assets

 
]]> http://bookkeeping.a-z-finance.net/assetsnon-current-side-of-the-balance-sheetpart3of3/feed/ 0 Assets(Current Asset) Side Of The Balance Sheet(Part2of3) http://bookkeeping.a-z-finance.net/assetscurrent-asset-side-of-the-balance-sheetpart2of3/ http://bookkeeping.a-z-finance.net/assetscurrent-asset-side-of-the-balance-sheetpart2of3/#comments Sat, 03 Nov 2007 09:56:55 +0000 slang http://bookkeeping.a-z-finance.net/assetscurrent-asset-side-of-the-balance-sheetpart2of3/ This part 2 of the assets side of the Balance Sheet specifically looks what’s current assets and its components:

WHAT ARE CURRENT ASSETS?

 

Current assets are assets:

 

  • that are expected to be realised in, or is held for sale or consumption in, the normal course of the enterprise’s operating cycle ; or

 

  • is held primarily for trading purposes or for the short term and expected to be realised with twelve months of the balance sheet date ; or

 

  • Is cash or a cash equivalent asset which is not restricted in its use

 

 

 

Current Assets

Description

Cash

Funds that are readily available for distribution.

Marketable Securities

Investments that are both readily marketable and expected to be converted into cash within one year

Inventories

Consists of raw materials, work-in-progress and finished goods. Aggregate of items either held for sale in the ordinary course of the business, in process of production for such sale, or soon to be consumed in production

Accounts Receivable

Amounts owed to the entity by its customers

Prepaid expenses

Assets paid in advance whose usefulness will expire in the near future

Deposits

Deposits are assets which are monies paid to landlord, government authorities and others. These monies are paid in advance but are recoverable in the near future.

Other Debtors

Amount owing by the entity’s non customers like staff advances, etc

]]> http://bookkeeping.a-z-finance.net/assetscurrent-asset-side-of-the-balance-sheetpart2of3/feed/ 0