how to prepare a balance sheet
TRANSCRIPT
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How to Prepare a
Balance Sheet
Uday JumlePGP 2016-18
IIM Bangalore
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“It sounds extraordinary but it's a fact that balance sheets can make fascinating
reading.” - Mary Archer
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• Financial statement of a company.
• What is Balance Sheet?
• It’s a statement which relates assets, liabilities and shareholders equity.
Assets = Liabilities + Shareholders Equity
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• Importance of Balance Sheets
Indication of financial standing of company.
Qualification for taking additional loans.
Gauge expected future returns.
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• Calculate Assets : Sum of assets, investments, money and product that company owns.
•Creating A Balance Sheet.
• Determine Liabilities : Liabilities include operational cost, debt and material expenses.
• Evaluate Equity : Equity is calculated after subtracting liability from assets. Revenue generated by company increases equity.
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Assets Liabilities
Equity
Assets Liabilities
Equity
+/- Net Income+/- Valuation Changes+ Capital contributions
Beginning Balance Sheet Ending Balance Sheet
• Example of Balance Sheet entry
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Assets (In ₹ Millions)
Cash ₹126.00
Office ₹25.00
Accounts Receivable ₹3.78
Equipment ₹17.99
Prepaid Insurance ₹1.23
Total ₹174.00
Liabilities
Accounts Payable ₹78.11
Salaries Payable ₹12.78
Interest Payable ₹$1.20
Taxes Payable ₹$4.91
Total ₹97.00
Equity
Shareholders Equity ₹77.00
Total ₹77.00
• Example of Balance Sheet entry
Transaction : Paid ₹20,00,000 for services received in past.
Assets = Liabilities + Shareholders Equity174.00= 97.00+77.00
(In ₹ Millions)
(In ₹ Millions)
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Assets
Cash( 126.00-2.00)
₹124.00
Office ₹25.00
Accounts Receivable
₹3.78
Equipment ₹17.99
Prepaid Insurance ₹1.23
Total ₹172.00
Liabilities
Accounts Payable(78.11-2.00)
₹76.11
Salaries Payable ₹12.78
Interest Payable ₹$1.20
Taxes Payable ₹$4.91
Total ₹95.00
EquityShareholders Equity
₹77.00
Total ₹77.00
• Example of Balance Sheet entry
Transaction : Paid ₹20,00,000 for services received in past.
Credit Cash by
20,00,000
Debit Acc. Payable by 20,00,000
Assets = Liabilities + Shareholders Equity172.00= 95.00+77.00
(In ₹ Millions) (In ₹ Millions)
(In ₹ Millions)
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• Exercise
Transaction 1:Received ₹ 0.2 Million Cash ( Revenue) for services.
Transaction 2: Received ₹ 0.18 Million for services provided in past.
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Assets (In ₹ Millions)
Cash ( 126.00+0.20+0.18)
₹126.38
Office ₹25.00
Accounts Receivable(3.78-0.18)
₹3.60
Equipment ₹17.99
Prepaid Insurance ₹1.23
Total ₹174.20
Liabilities
Accounts Payable ₹78.11
Salaries Payable ₹12.78
Interest Payable ₹$1.20
Taxes Payable ₹$4.91
Total ₹97.00
Equity
Shareholders Equity(77.00+0.20)
₹77.20
Total ₹77.20
• Example of Balance Sheet entry
Assets = Liabilities + Shareholders Equity174.20= 97.00+77.20
(In ₹ Millions)
(In ₹ Millions)
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Questions?
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Thank You!!