Category: Accounting

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.

A balance sheet offers an overview of a business’s financial status of a particular time. It tells you about the business’s assets, liabilities, and capital. The assets need to be equal to the total of the liabilities and the business’s equity from shareholders.

The purpose of a balance sheet is to identify the financial strength of the company (Also see The Balance Sheet and the Profit & Loss Account). It tells you how stable, financially, your company is. Regularly, you will discover yourself depending on the balance sheet when making a decision and in preparation of other financial statements.

What Are Assets?

Assets are the properties owned by your company. There are two classifications of assets: current assets and long-term assets. The cash in your company is described as the current asset due to high liquidity. Since machinery and other properties like real estates take a longer duration to liquidate, they are counted as long-term assets. Other examples of current assets are account receivables and cash on hand (Also see What Is Cash Flow?). These assets usually are transformed to cash in one fiscal year.

Fixed assets depreciate over time. For instance, machinery and buildings tend to lower in worth with time. Some assets, such as land increase its value with time. The typical types of fixed assets in a company are the machinery, vehicles and workplace equipment. None of these is easily convertible to cash within one fiscal year of the company.

What Are Total Assets?

The total assets of a company are when you add all the current and fixed assets your business owns. This is what you need to record and report on your balance sheet. The quantity you receive does not represent the current fair market price, but the purchase cost of the assets.

Owners’ Equity and Liabilities

Liabilities are the company’s obligations to the outside world. Owners’ equity is the amount when you deduct the debt quantity from the total assets. These liabilities and debts are to be paid in one year for short-term liabilities or after one year for long-lasting liabilities. For example, the debts from creditors and suppliers’ accounts, accrued wages, accounts payable, shareholders deposits and income account payable.

A balance sheet is a crucial financial statement that usually prepared by accounting firm in Singapore. The balance sheet reveals the business financial position at a specific time. Hence, you need to guarantee that it is made correctly, and you may look for any accounting services in Singapore for further guidance.

An investor needs to know how to analyse the investor ratios when assessing the financial statements of a company (Also see Getting Ready as An Ambitious Accountant). Investor ratios could be used to determine the health of a business as it can show whether it is a good investment or bad investment.

When a business makes profits, the directors have two options to manage these profits – to reinvest profits or pay dividends. Some investors are searching for development, whereas some investors are searching for a good yield. Some investors are willing to give up short-term profits as they desire to increase the share price to make profits. Below are a few investors ratio that you need to understand:

Earnings Per Share (EPS)

EPS = Net income-Preferred Dividends / Weighted Average Shares Outstanding

This ratio indicates that the profit shown in Profit and Loss that could be paid investors in theory. From EPS, we can determine whether the EPS of the business under consideration is constant, reducing or growing.

Earnings per share are simple to comprehend, and figures are available. However, a research study has revealed that there is a poor connection between shareholder value and earnings per share growth.

Dividend Per Share (DPS)

DPS = Annual Dividends / Weighted Average Shares Outstanding

Annual dividends consist of total dividends paid by an organisation in one year, including interim dividends but excluding special dividends.

Investors used DPS to evaluate various entities to invest in. However, DPS ratio might not show a complete image and position. Some companies might keep their profits for future investments, instead of paying dividends to current investors. By doing so, the company can boost the value of their shares and the general worth of the business.

Dividend Yield

Dividend Yield = Dividend Per Share / Current Share Price

This ratio shows the percentage return made by an investor regarding the company’s current share price. Investors would have an interest in the dividend yield as they desire returns or good yields from their investment. Dividend yield benefits the investors as it can be used as a comparison with other financial investment chances.

Dividend Cover

Dividend Cover = Profit After Tax – Preference Dividends / Dividends Paid

Dividend cover measures a company’s ability to pay dividends. It tells us how many times over the profits of a company could pay the dividends. For instance, if a company’s dividend cover is 3, this indicates that the company’s profit was thrice the number of dividends paid to shareholders. Usually, the objective of an organisation is to maintain a dividend cover of 2 to obtain enough funding from retained earnings and to offer a reasonable return to the shareholders.

There are lots of accounting service in Singapore you can seek help from if you need further assistance in understanding financial statement.

Lots of small company owners struggle with poor cash flow, which is caused by high unexpected costs, inadequate customer work and slow-paying customers (Also see Managing Accounts Receivable Could Save Business).

First of all, we need to understand that profit is the difference between expenses and revenue in the Profit and Loss Account. Hence, cash flow is not profit. It is possible for a business to be unprofitable but having positive cash flow and vice versa. For instance, when an entrepreneur deposits his or her cash into a bank account, which enhances cash flow but not profits.

Secondly, cash flow is not working capital, although cash flow and working capital are frequently used interchangeably. The difference is that working capital is the current assets minus the current liabilities. It is the money you can utilise in cash shortages.
Cash flow is the total amount of money streaming in and out of your business. You could have positive cash flow when more money is flowing in than out and your business would be in the black. Contrarily, when more money is flowing out than in, you would have negative cash flow which causes your business in the red. This is certainly something an accounting firm in Singapore can assist you.

Cash flow plays a vital role in:

Making better business choices

Understanding your cash flow helps you to decide. For example, you plan to purchase a brand-new laptop and you find that your earnings far exceed your expenditures at the end of the month. Since you have adequate money, you can make that purchase confidently. Contrarily, you might put that purchase on hold until your scenario improves if you are in the red. In both case, since you always track your cash flow, you have made a wise choice.

Keeping your business afloat

When paying the bills, you need to refer to cash flow to avoid running the risk of closing your doors. Your objective is to maintain positive cash flow and make sure that you always make more than you are investing.

Better money management

Knowing your cash flow assists you to comprehend how you handle your money and what business activities are resulting in boosts or reduces in cash flow. For instance, you found that you have profit come year-end but you have a hard time to cover the expenses every month. Therefore, knowing outflows and inflows helps to determine any issues so that you can solve the situation immediately.

Growing your company

A business requires adequate cash to reinvest—to invest in advertising, buy new equipment and office.

Seasonal businesses

Seasonal businesses generally have marked hectic and slow durations and unforeseeable cash flow. They need to thoroughly handle their cash flow year-round so that they have sufficient money to tide them over throughout the slow periods.

To gain more insight on cash flow statement, check out accounting service in Singapore.

Due to the fact that it is a method of communicating information to the financial elements of a business company, accounting is frequently known as a language of business. The financial statements are the foundation of accounting as it is the step to obtain a concept about the financial condition of a business. The significance of the financial statement in accounting services in Singapore for small companies is uncountable. Its effectiveness could not be specified in simply a couple of words. Specifically, it is an evaluation of the practicality, stability and success of a company entity.

What is a Financial Statement?

A financial statement is to record the financial functions of a company and it consists of elements like balance sheet and profit and loss. This record is kept by every company to make the financiers, lending institutions and company owner familiar with the financial health of the company. It is shown structurally (Also see What is a Chart of Account?) so that everyone could quickly comprehend and understand the problems. A financial statement or report shows crucial information relating to profitability, liquidity and solvency of a company.

Effectiveness of Financial Statement

The significance of the financial statement is tremendous as it offers pertinent details about the business and satisfies the requirements of the interested bodies such as management, lenders, financiers, the government and so on. The functions of a financial statement are listed below:

Management

In the competitive environment, a company would stop working if there is no innovative plan, method or strategy. A financial statement is an excellent aid to management in comprehending the present position of the company while understanding the current pattern of development and possibility of it. Thinking about these elements, they can make a crucial long-lasting business choice.

Creditors

Financial institutions such as a bank, analyse and evaluate the financial statement to understand the financial condition of the company and whether it has going concern issue. They also consider this element to assess the credit terms provide to the company.

Government

Remarkably, a financial statement could be practical to the local government and other regulatory authorities. These authorities evaluate this report through different taxes and use this criterion to handle capital concern and utility guideline.

Investors

Both potential and present investors, utilise financial statements to examine the present state of the financial of the business such as its worth or working capital usage (Also see Components of Working Capital). It is a crucial element in making crucial choices on financial investment.

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