BALANCE SHEET

PREPARATION
PREPARED BY:
Umer Ali
Umer Tahir
Haris Khan
Salman Shiekh
Adeel Hussain
Dawar Ahmed
Hafiz Usman

FINANCIAL STATEMENT
Income

Statement
Capital Statement
Balance Sheet
Cash Flow

The BALANCE SHEET

is
the Cornerstone to
Financial Management.

BALANCE SHEET

A Financial Statement that reports the

Assets, Liabilities, and Owners Equity
at a specific date.

PURPOSE OF BALANCE SHEET:

Disclosure of values and natures of assets and

liabilities
Information about solvency
Information about liquidity
Information about other necessary aspect
Provision of a yardstick of measurement

FEATURES OF BALANCE SHEET:

It is a statement but not an account

It is a summary of unallocated balances
It acts as a buffer between the transactions of two
consecutive accounting periods
It acts as a resource statement

Debits & Credits

Debits either increase a debit account or

decrease a credit account. For example, a debit
entry may record an increase in an asset, an
expense, or a decrease in a liability.

Credits either increase a credit account or

decrease a debit account. For example, a credit
entry may record an decrease in an asset, an
increase in a liability, or a revenue or profit.

Balance Sheet contains :

ASSETS

LIABILITIES

EQUITY

CURRENT
ASSETS

OTHER
CURRENT
ASSETS

SHORT
TERM
LIABILITIES

LONG
TERM
LIABILITIES

OWNERS
EQUITY

ASSETS:

Asset is a resource controlled by the entity

as a result of past events and from which
future economic benefits are expected to
flow to the entity.

Something a business owns.

Types Of ASSETS:

Current Assets are ones that an entity

expects to use within one-year time from
the reporting date.

Non Current Assets are those whose

benefits are expected to last more than
one year from the reporting date.

Examples Of ASSETS:Equipment
Cash
Raw material
Furniture
Building
Accounts receivable
Supplies
Prepaid expenses

LIABILITIES

liability is defined as an obligation of an

entity arising from past transactions or
events, the settlement of which may result
in the transfer or use of assets, provision
of services or other yielding of economic
benefits in the future.

An amount of business owes.

Examples of LIABILITIES:Account payable

Wages payable
Salaries payable
Property taxes payable
Interest payable
Utilities payable and etc

EQUITY

Equity is the residual value or interest of

the most junior class of investors in assets
, after all liabilities are paid; if liability
exceeds assets, negative equity exists.

Leftover assets

Types of EQUITY:Contributed Capital

Investment By Owner
Dividends
Owners Withdrawal
Revenue
Earning
Expenses
A used up Assets

RELETION BETWEEN THESE

IS

ASSETS

LIABILITIES + EQUITY

Basics for Balance Sheet:

A financial statement that summarizes a company's

assets, liabilities and shareholders' equity at a specific
point in time.
These three balance sheet segments give investors an
idea as to what the company owns and owes
As well as the amount invested by the shareholders.

Formats:

There are two formats of balance Sheets.

Horizontal Balance Sheet

Vertical Balance Sheet

Horizontal Balance Sheet

The first column itemizes all of the asset line items for
which there are ending balances,
Followed in the next column by the numbers associated
with those assets.
The third column lists all of the liability line items and
then the equity line items.
After which the fourth column states the numbers
associated with these liabilities and equity items.

Vertical Balance Sheet:

A vertical balance sheet is one in which the balance

sheet presentation format is a single column of numbers,
beginning with asset line items, followed by liability line
items, and ending with shareholders' equity line items.
Within each of these categories, line items are
presented in decreasing order of liquidity.

Balance Sheet; Asset Types

Current assets (<1 year)

Consumed

or converted to cash in 12 months

e.g. crops, market livestock, prepaid expenses,
cash, savings

Intermediate (1-10 years)

e.g.

machinery,
buildings

equipment,

Long Term (>10 years)

e.g.

land, buildings, stocks

stocks,

some

Balance Sheet; Debt Types

Current liabilities (<1 year)

To

pay in the next 12 months e.g. bills, accrued

interest, taxes, operating loans.

Intermediate (1-10 years)

What

is scheduled to be paid in 1 to 10 years

e.g. machinery loans, special use buildings

Long Term (>10 years)

Scheduled

originally to be paid in 11 or more

years e.g. land debt, house payments

BALANCE SHEET REPRESENTS:

What does this represent?

Partnership and individual

Date -- This is As of what date?

Listing of all assets and all liabilities

Balances at the bottom of form

Assets - Liabilities = Equity

Shows financial position

Net result of past

Very important component to track and monitor financial progress

Basic building block for financial analysis

What a Balance Sheet is NOT

Does NOT necessarily tell you if the
business is making money
Does NOT tell you where net worth
came from

Balance Sheet Preparation

IDENTIFY clearly the person(s) or the business

entity being described
SEPARATE the business assets and liabilities
from the personal
Be CONSISTENT as to WHEN the Balance Sheet
is prepared

at a minimum, prepare a net worth statement when your

accounting year ends

Valuation of Assets -- costs and/or market

recommend two column balance sheet

Trial balance

Collection of all accounts that exist in the

company's chart of accounts with balances as of
a particular date.

Each account has either a debit or credit

balance. The total of all debits equals the total of
all credits (i.e. double-entry accounting system)

Cont..

The final step is to transfer the classification totals

from the trial balance to the balance sheet template.

Transfer all the debits and credit accounts into the

respective assets and liabilities column.

Classify assets

Classify liabilities

LIMITATION OF BALANCE SHEET:

The Balance Sheet usually shows fixed assets at depreciated values of their historical
costs, that is, the cost incurred at the time of their acquisition. But in a situation where
the price level becomes subject to frequent changes, the values depicted in the
Balance Sheet remain incorrect.
Fictitious, unrealizable and bogus assets like Unwritten off Expenses also find place
in the Balance Sheet which entirely goes against the value mechanism.
A Balance Sheet as a transactional statement of assets and liabilities becomes a
static statement of funds, it fails to bring out important aspects like business trend,
managerial efficiency, etc.
A Balance Sheet fails to disclose human and efficiency of workers. It ignores
qualitative aspects.
Balance Sheet as an indicator of financial resources, enjoyed central attention till the
1930s. Thereafter, income statement like profit & loss accounts enjoy more attention
as they can explain how and what amount of income have been generated during an
accounting period.

The Balance Sheet:

Building Block for Financial Analysis
Financial Position
Trend Analysis
Feeds Into the Income Statement
Communication to Self
Communicating with those outside
the business
Needs Good Detail

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