Chapter 3-Accrual accounting and the balance sheet

• Balance sheet is financial statement which shows the financial statement of particular day
(end of the year)
• Balance sheet has a two sides assets and liabilities
• Left side loans takes by the company Liabilities , right side asset side (debit side)

Liabilities Assets
Share Capital Fixed Assets
Equity share capital Plant & Machinery
Preference share Leasehold premises
Furniture
Engineering tools
Motor car
Goodwill patents
Freehold premises
Reserve and surplus Investment
Share premium Govt Bonds
Reserve fund Shares of subsidiary company
Capital reserve
Sinking fund
Borrowed fund Current Assets & Advances
Debenture Stock
Bank loan (long term loan) Debtors
Bill receivables
Cash /bank balance
Prepaid expenses
Advance Tax
Short term investments

Current liabilities /provision Misc. Exp

Creditors R & D expenses
Bills payable Preliminary expenses (expenses incurred st
Bank overdraft(facility given to current the start of company)
A/c holder ) Share issue expenses
Outstanding expenses(salary,
electricity bill )
Provision for tax (we pay current year
tax in next year)
Proposed dividend(from profit we
have to pay dividend of this year in
next year )
Provident Fund

• If assets more then liabilities then company is on good position

• Company can raise the funds from share capital or borrowed fund (limited company)
• Limited company – imp source of fund is share capital
• Reserve surplus :- share premium (for eg , company issue share of Rs 10 at Rs 40 so the
surplus amount of 30 can be recorded in reserve and surplus), accumulated profit
• Preference share not issue publica ally they issue to the employee, director, preference
share value remain same it can not be change
• The equity share holder of company is a permanent owner of a company
• Redemption of preference share :- temporary owner of the company , enjoys fixed rate of
dividend
• Equity shareholders dividend income is fluctuating
• Company has to pay equity shareholders at the time of merge or acquisition
• Reserve fund :- some part of the profit keep for various purpose , it is company policy ,
• Borrowed fund – two categories secured loan and unsecured loan , in trial balance you can
get the loan you have to divided into secured an unsecured loan
• Secured loan – company can raise the fund while keeping the assets with the financial
institution, for eg:- debenture the agreement between company and debenture holder
called indenture
• Debenture holder are the financer of the company
• Unsecured loan -loan from director , from employee, from customer , public deposits (with
more interest but public will not get security)
• Current liabilities – are those liabilities which are generated because of your operation ,
those obligation which is company has to pay within one year if it is not paid within one year
then it is unsecured loan (eg-creditors , bills payable)
• Accrued expenses when it is incurred don’t see whether it is not paid
• Assets side- Fixed asset
• Day to day expenditure called working capital
• Company invest once in fixed assets
• Current assets are those assets which can be easily liquified , in that two current assets are
non-quick assets , stock and prepaid expenses (cant get converted Into cash)
• Advance income -non quick liabilities
• Mis. Expenses – accumulated loss (R & D expenses , preliminary expenses )