The Balance Sheet and the Profit & Loss Account

The Balance Sheet and the Profit and Loss Account

The Balance Sheet

A balance sheet is a financial statement that reveals an entity’s financial position at a provided date. It has two head columns which are to be tallied. They are assets and equity as well as liabilities.

For assets, it shows the current and non-current assets of a company. The current assets are properties that could transform into cash in one year, consists of cash, debtors, stock, money at the bank, valuable securities, and so on. Non-current assets have two categories — tangible and intangible assets (Also see Accounting for Goodwill). For tangible assets, they are the company’s physical assets, like building, equipment, land, vehicles, and so on. On the other hand, intangible assets are the non-physical properties of the business, for example, trademark, patents, goodwill, and so on.

On the equity and liabilities section, it shows the shareholder’s fund, non-current and current liabilities. Shareholders fund consists of the shareholder’s equity and reserves. Current liabilities are liabilities that should be paid in one year and consists of short-term loan, bills payable, creditors, and so on. Non-current liabilities are liabilities that should be paid after a duration and consists of bonds, long-term borrowings, and so on.

The Profit and Loss Account

The profit and loss account is also called an income statement. The account shows the company’s financial performance in a specific duration.

The net sales are recorded using accrual concept when the expense of products sold is subtracted, and the outcome is the gross revenue of the company. Now from these gross earnings, the workplace and administration, including insurance, rent, stationery, selling and distribution (bad debts, carriage outwards) costs are lowered, which totals up to operating profit (Also see Investor Ratios in Financial Statement).

After calculating operating profit, operating income is added while the operating costs are reduced, which leads to the net earnings or loss. If the earnings go beyond expenditures, this shows that net profit while the expenditures exceed earnings, it represents a loss (Also see Employ Accounting Service To Prepare Financial Statements).

You may engage our accounting service in Singapore for more information on the difference between the financial statements.

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