Components of Balance Sheet

and Income Statement - 1

Presented by – Mazrukh Rohan

On – 07/02/2017
Components of Balance Sheet and Income
Statement - 1
• Facilitator’s details
• Mazrukh Rohan
• mazrukh.rohan@ulab.edu.bd
• 01713-042852
• Consultation details
• Mon & Wed: 10.00–11.20 (Room PB207, Permanent
Campus).
• Tues: 9.00-1.00 (Room AA 406 (3rd floor), Oboshor
Bhaban)
Components of Balance Sheet and Income
Statement - 1
• Today’s discussion on
• Definition of accounting
• Rules, measurement and other principles followed in
accounting
• Types of Financial reports (cont.)
• Who prepares these reports and why
• Accounting equation: Assets = Liabilities and Owner's
Equity
Components of Balance Sheet and Income
Statement - 1
• Accounting identifies, records and communicates economic
events to users.
• Identifies – relevant economic events
• Records – systematically and chronologically
• Communicates – through reports i.e. Balance sheet,
Income Statement, Owner’s Equity and Statement of
Cash Flows
• Who are the users?
• That means we need to follow rules to identify, record and
communicate.
Components of Balance Sheet and Income
Statement - 1
• What are these rules?
• GAAP
• IASB & IFRS
• BAS & ICAB
• Measurement principles
• Historical cost
• Fair value
• Measurement principles are guided by relevance-faithful
representation trade-off
Components of Balance Sheet and Income
Statement - 1
• Other principles (the Text book says – “assumptions”)
• Monetary unit
• Economic entity
• Going concern
• Timely
• Types of Entity (these entities prepare financial reports)
• Sole proprietor
• Partnership
• Company
Components of Balance Sheet and Income
Statement - 1
• Types of financial reports
• Balance Sheet – assets & liabilities
• Income Statement – income & expenses
• Owners’ Equity – changes in equity and
• Statement of Cash Flows – sources and movement of
cash
• In this course we will focus on preparing partial Income
Statement, Balance Sheet and Owner’s Equity
Components of Balance Sheet and Income
Statement - 1
• Balance sheet
• What is it? – what business owns and owes (borrowings)
• Owns resources to generate income i.e. assets
• Borrows money to run the business i.e. liabilities
• So it reflects the financial position for a given date
• Examples of Assets
• Cash
• Accounts receivables
• Supplies/stock
• Equipment
Components of Balance Sheet and Income
Statement - 1
• Examples of Liabilities
• Accounts payables
• Other payables
• Loan
• So what happens if assets do not match liabilities?
• A-L = ?
• This difference is called Owner’s Equity – type of financial
report.
• A-L = OE
Components of Balance Sheet and Income
Statement - 1
• Owner’s Equity
• What is it? – what is left of assets after paying all the
liabilities.
• It reflects what is left for the owners of the business.
• Owner’s equity consists of
• Owner’s initial and subsequent contributions
• Owner’s drawings
• Income - expenses
Components of Balance Sheet and Income
Statement - 1
• So, Assets - Liabilities = Owner’s Equity
• By rearranging we get, Assets = Liabilities + Owner’s Equity
(the basic accounting equation)
• By expanding we get, Assets = Liabilities + {Owner’s
contributions – Owner’s drawings + (Income – Expenses)
• What is Income – Expenses? = Income Statement
• So income statement is a part of Balance Sheet
Components of Balance Sheet and Income
Statement - 1
• Income Statement
• What is it? – Income/Revenue less expenses
• Income earned by manufacturing and selling products or
providing services
• To do the above businesses will have buy products and
services. That is expenses.
• So it reflects the financial performance for a given
period
Components of Balance Sheet and Income
Statement - 1
• Examples of Income /revenue
• Selling products, providing services
• Fees, commissions, rent, royalties
• Interest, dividends
• Examples of Expense
• Supplies/stocks
• Salary
• Electricity, internet, telephone
• Transport, fuel
• Repair and maintenance
Components of Balance Sheet and Income
Statement - 1

Questions?