Vertical Balance Sheet

INTRODUCTION The term Financial Statement refers to statement which accountant prepare at the end of period of time for a business enterprise. They are : 1.

Balance Sheet : In financial accounting, a balance sheet or statement of financial position is a summary of a person's or organization's balances. Assets, liabilities and ownership equity are listed as of a specific date, such as the end of its financial year. A balance sheet is often described as a snapshot of a company's financial condition. A company balance sheet has three parts: assets, liabilities and ownership equity. The main categories of assets are usually listed first and are followed by the liabilities. The difference between the assets and the liabilities is known as equity or the net assets or the net worth or capital of the company and according to the accounting equation, net worth must equal assets minus liabilities.

2.

Income Statement : Income statement, also called profit and loss statement (P&L) and Statement of Operations, is a company's financial statement that indicates how the revenue (money received from the sale of products and services before expenses are taken

out, also known as the "top line") is transformed into the net income (the result after all revenues and expenses have been accounted for, also known as the "bottom line"). The purpose of the income statement is to show managers and investors whether the company made or lost money during the period being reported. The important thing to remember about an income statement is that it represents a period of time. This contrasts with the balance sheet, which represents a single moment in time. 3. Cash flow statement : The cash flow statement is intended to : • provide information on a firm's liquidity and solvency and its ability to change cash flows in future circumstances • provide additional information for evaluating changes in assets, liabilities and equity • improve the comparability of different firms' operating performance by eliminating the effects of different accounting methods • indicate the amount, timing and probability of future cash flows

IMPORTANCE OF FINANCIAL STATEMENTS •

Requirement of lenders :

In case of borrowing from banks and financial institutions they insist the borrowers to furnish financial statements in order to assess their profitability. •

Guides future course of action :

Financial statements guide the management about the proper way to expand & prosper indicating in which area and what extent expansion is possible. •

To understand the future :

Based on projected financial statements the management will be able to, in a better way, understand the future. •

To exercise control :

The management will be able to exercise better control if they are clear about the position of the organization. •

Better awareness of present position :

For preparing a financial statement, a good knowledge about the present position is essential. Thus, in the process of preparation of financial statement, management is made aware of the present situation.

•

Arithmetic accuracy to future plans :

In case of financial statements everything is put down on paper in terms of rupees. Thus, it is very important for control and directive actions. •

Acts as a base for future action :

Financial statements are the base on which the management acts.

USES OF FINANCIAL STATEMENT 1) It helps to reveal changes in the various items of balance sheet from the past to present 2)

They help to measure the profitability.

3) They provide a concise summary of the firm’s revenue and expense during the date or service of dates 4) Financial statement report the effect of plan of operations on the assets, liabilities and capital of the economy.

CHARACTERISTICS OF FINANACIAL STATEMENT They are regarded as indices of an enterprises performance. As such extreme care should be taken while preparing those statements. They reflect visible characteristics like: 1. Internal audience: They are useful for those who have an interest in the business. They have to be prepared on the assumptions that the user is familiar with the business and the terms used in it. 2. Articulation: The basic financial statement are inter related and hence they are said to be articulated. E.G. Profit and Loss A/c shows either an increase or decrease in the resources which is reflected in the B/S. 3. Historical nature: They generally report what has happened in the past. They are used as an basis for future by investors and creditors they are not intended to provide basis for future and its effect on the B/S.

4. Summarization & Classification: The volume of business transaction affecting business operations are so vast that the summarization and classification of business items and events alone will enable the reader to draw useful conclusions from it. 5. Money term: All the business transactions are quantified and measured in terms of money. In absence of these units the measurement of financial statements will be meaningless. 6. Various valuation method: The valuation method are not uniform for all the items found in the B/S.E.G. inventories are measured at cost or market price which ever is less, fix assets are measured at cost – depreciation. 7. Accrual basis: Most financial statements are prepared on accrual basis rather than on cash basis i.e. taking into a/c all income due but not received, all expenses due but not paid etc. 8. Conservatism: Wherever and whenever estimates & personal judgement become Essentialduring the course of the preparation the estimates should be paced

moderately to avoid any possibility of overstating the assets and incomes.

PROFORMA OF VERTICAL BALANCE SHEET: PARTICULARS

AMOUNT AMOUNT AMOUNT

SOURCES OF FUNDS I. 1. a.

b.

Share holders fund Share capital 10% preference share capital

XX

Equity share capital

XX

XXX

Less: unpaid calls

XX

Add: share forfeited

XX

XXX

Reserves and Surplus

c.

2. a.

b.

General reserve

XX

Capital reserve

XX

Profit and loss account

XX

Capital redemption reserve

XX

Security premium

XX

XXX

Less: Fictitious assets Preliminary expenses

XX

Discount on issue of shares

XX

NET WORTH

XXX

XXX

XXX

Loan funds Secured loans

II. 1.

Debentures or bonds

XX

Bank loan

XX

XXX

Unsecured loans Other loans

XX

Public deposits

XX

XXX

TOTAL FUNDS AVAILABLE

XXX

2.

3. a.

APPLICATION OF FUNDS Fixed assets Land and building Plant and machinery Goodwill

b.

Patents Trademarks Furniture Less: depreciation

XX XX XX XX XX XX XX

XXX

Investments Trade investments

XX

XXX

Working capital Current assets Stock

XX

Prepaid expenses

XX

Outstanding income

XX

Sundry debtors

XX

Bills receivable

XX

Cash/ bank balance

XX

XXX

Less: current liabilities Sundry creditors

XX

Bank overdraft

XX

Bills payable

XX

Outstanding expense

XX

Income revieved in advance

XX

CAPITAL EMPLOYEED

XXX

XXX

Particulars . PROFOMA FOR REVENUE

Rs.

Rs.

INCOME STATEMENT 1. Gross Sales 2. (-) Return of allowance. 3. Net Sales(1-2)

XX

4. (-) C.O.G.S

XX XX

(a) Opening.Stock (+)(b) Purchases(net) (Gross Less Return) (c ) Direct Exp. (d) Direct Wages. (e) Depr. Of Mach. (f) Depr Of Factory (-) (g) Closing Stock. Sale Of Scrap

XX XX XX XX XX XX

Cost Of goods Sold (a+b+c+d+e+f-g)

XX

G/P

(+) Operating Income. Discount On Purchases. Discount Receivable. Recovery Of Bad debts

XX XX

(-) Operating Expenses. (1) Administration Exp. Salary Insurance Office Exp Legal Exp. Audit Fees Depreciation. (2) Selling & Distribution Commission Advt. Salesman Salary. Distribution Exp. (3)Finance Exp. Interest On Debenture

XXX

XXX

(3-4)

Exp

Rs. XX XX

XX XX XX XX XX XX XX XX XX XX XX XX XX

XX

XX XX XX

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