COMPONENTS OF BALANCE SHEETS

STATEMENT OF FINANCIAL also known as the BALANCE SHEET, presents the financial position of an entity at a given date. It is
POSITION comprised of three main components: Assets, liabilities, and capital or owner’s equity.
ASSETS Assets are properties or economic resources owned by the business. The most common properties or
assets of a business are Cash, receivables, furniture, and fixtures (such as tables, cabinets, chairs, etc),
office equipment and supplies (such as calculators, computers, copying machines, fax machines, etc.)
machinery, delivery truck, land, building, etc. Before a property can be considered an asset, it is necessary
that it has value, and is owned by the business.. However, some assets of the business have no physical
appearance (cannot be seen or touched) but values sometimes are even higher than some of the tangible
assets.
INTANGIBLE ASSETS They are called ________. Examples are franchises, patents, trademarks, copyright, goodwill, etc.
TANGIBLE ASSETS that they can be seen and touched. The above-mentioned assets are called in the sense
LIABILITIES These are amounts owed by the business. In simpler terms, they are debts or legal obligations of the
business to individuals or other businesses. Examples are payables to suppliers, loans with a bank,
mortgage payable, taxes payable, and other unpaid expenses. Liabilities must be classified in the statement
of financial position as current or non-current depending on the duration over which the entity intends to
settle the liability.
NON-CURRENT. A liability that will be settled over the long term is classified as?
CURRENT LIABILITIES Those liabilities that are expected to be settled within one year from the reporting date are classified as?
Liabilities are moreover classified within the statement of financial position on the premise of their nature:
Essentially incorporate liabilities due to providers and temporary workers for credit buys. Sundry payables
*TRADE AND OTHER which are also immaterial to be displayed independently on the confront of the adjust sheet are moreover
PAYABLES classified in this category.
*SHORT-TERM BOROWINGS Borrowings ordinarily incorporate bank overdrafts and brief-term bank credits with a reimbursement plan of
less than 12 months.
*LONG-TERM BORROWINGS Contain credits that are to be reimbursed over a period that surpasses one year. The current parcel of long-
term borrowings incorporates the installments of long-term borrowings that are due within one year of the
detailing date.
*CURRENT ASSESS Is ordinarily displayed as a separate line thing within the statement of financial position due to the
PAYABLE materiality of the amount.
CAPITAL It is also called Owner’s Equity. This is the owners’ interest or claims in the assets of a business after
subtracting the interest of the creditors. It is the difference between the amount of assets and the amount of
liabilities. Examples are Capital, Drawings, or Withdrawal of money from the business and income.
Capital is ordinarily displayed in the statement of financial position under these categories:
Share capital speaks to the sum invested by the proprietors within the entity.
Retained Earnings comprise the overall net benefit or misfortune held within the trade after distribution to
the proprietors within the frame of dividends
Revaluation Reserve contains the net excess of any upward revaluation of property, plant, and equipment
recognized straightforwardly in equity.
Accounting Equation: ASSETS = LIABILITIES + CAPITAL
BALANCE SHEET Structured in a manner that the total assets of an entity are equal to the sum of liabilities and equity.
This may lead you to wonder as to why the balance sheet must always be in equilibrium. Assets of an entity
may be financed from internal sources (i.e. share capital and profits) or external credit (e.g. bank loan, trade
creditors, etc.). Since the total assets of a business must be equal to the amount of capital invested by the
owners (i.e. in the form of share capital and profits not withdrawn) and any borrowings, the total assets of a
business must be equal to the sum of equity and liabilities. This leads us to the accounting equation
ACCOUNTING EQUATION Means that everything the business owns (assets) is balanced against claims against the business
(liabilities and equity). Liabilities are claims based on what you owe vendors and lenders. Owners of the
business have claims against the remaining assets (equity).
PURPOSE AND financial position identifies the monetary well-being of the business. When analyzed over a few
IMPORTANCE OF SFP bookkeeping periods, balance sheets may help in distinguishing fundamental patterns within the money-
related position of the business. It is especially accommodating in deciding the state of the entity's liquidity
chance, budgetary chance, credit hazard, and commerce hazard. When utilized in conjunction with other
financial positions of the business and the Financial position of its competitors, it can offer assistance to
distinguish connections and patterns that are demonstrative of potential issues or zones for advance
change. Analysis of financial position may subsequently help the business to anticipate the sum, timing and
instability of the entity's future profit.
BUSINESS RECORD A business record is a document (hard copy or digital) that records business dealing. A business record
includes meetings, minutes, memoranda, employment contracts, and accounting source documents. It
must be retrieved at a later date so that business dealings can be accurately reviewed as required.
GOOD RECORDS WILL Monitor the progress of your business.
HELP YOU DO THE Prepare your financial statements.
FOLLOWING: Identify sources of your income.
Keep track of your deductible expenses.
Keep track of your basis the property.
Prepare your tax returns.
Support items reported on your tax returns.
MONITOR THE PROGRESS You need good records to monitor the progress of your business. Records can show whether your business
OF YOUR BUSINESS is improving, which items are selling, or what changes you need to make. Good records can increase the
likelihood of business success.
PREPARE YOUR FINANCIAL You need good records to prepare accurate financial statements. These include income (profit and loss)
STATEMENTS. statements and balance sheets. These statements can help you in dealing with your bank or creditors and
help you manage your business.
INCOME STATEMENT shows the income and expenses of the business for a given period.
BALANCE SHEET shows the assets, liabilities, and equity in the business on a given date.
IDENTIFY SOURCES OF You will receive money or property from many sources. Your records can identify the sources of your
YOUR INCOME. income. You need this information to separate business from nonbusiness receipts and taxable from
nontaxable income.
KEEP TRACK OF YOUR Unless you record them when they occur, you may forget expenses when you prepare your tax return.
DEDUCTIBLE EXPENSES.
KEEP TRACK OF YOUR Your basis is the amount of your investment in property for tax purposes. You will use the basis to figure the
BASIS THE PROPERTY. gain or loss on the sale, exchange, or other disposition of property, as well as deductions for depreciation,
amortization, depletion, and casualty losses.
TYPES OF RECORDS FOR ACCOUNTING AND TAX PURPOSES
 Income  BUSINESS EXPENSES
 Petty cash  CREDIT CARD STATEMENTS
 Vehicle use log  BANK STATEMENTS
 Travel log  ANNUAL TAX RETURNS
 Cash register tapes  QUARTERLY TAX FILINGS
 Credit card sales  PAYROLL
receipts  INVENTORY
 Invoices  SALES
 Canceled checks
 Check stubs
OTHER RECORDS  Personnel records
 PURCHASE  Accident reports
ORDERS  Articles of incorporation
 EMPLOYMENT  Permits and Licenses
APPLICATIONS  Trademark registrations and Patents
 EMAILS AND
OTHER BUSINESS Financial records usually have a set of standards of reporting and any differences are very minimal. These
COMMUNICATIONS are:
 INVENTORY LOGS
ACCOUNTS RECEIVABLES is the balance of money due to a firm for goods or services delivered or used but not yet paid for by
customers. AR is any amount of money owed by customers for purchases made on credit
INVENTORY RECORDS. These records will be used to control your inventory items. Also, they could also be used to supply
information for your firm’s purchasing, maintenance of an economic supply of sticks, and computing turn-
over ratios.
ACCOUNTS PAYABLE is an account within the general ledger that represents a company's obligation to pay off a short-term debt
to its creditors or suppliers. Another common usage of "AP" refers to the business department or division
that is responsible for making payments owed by the company to suppliers and other creditors.
SALES RECORDS. The information you have on your customers, including but not limited to their contact information, how
often they purchase from you, what they purchase, and how they pay their bills. Your company's sales
records are quite likely to prove your most valuable marketing information source.
PRODUCTION RECORDS. These records provide a basis for your product costing and detect lost profits/costs as a result of idle
manpower or machinery.
PAYROLL RECORDS show the total payments you pay your employees and provide a basis for computing some legal payments.
CASH RECORDS show all receipts and disbursements made by your firm. They contain your firm’s cash flow and petty cash
balances. These records also enable you to know when to time your loans and they may be also used as
assurances for ready cash when needed.
SPECIFIC TYPES OF ACCOUNTING RECORDS
1. JOURNALS
SALES JOURNAL (SALES - These are used to record your company’s sales.
BOOKS)
PURCHASE JOURNAL - These are used to record your company’s purchase.
(PURCHASE BOOK).
CASH RECEIPTS JOURNAL -
(CASH RECEIPTS BOOK - These are used to record your company’s cash receipts.
CASH PAYMENTS JOURNAL
(CASH PAYMENTS BOOK - These are used to record your company’s payments in cash.
OR CASH DISBURSEMENT
BOOK). - These are used to record your company’s transaction mentioned in a, b, c, and d.
GENERAL JOURNAL.

ACCOUNTS RECEIVABLE 2. LEDGERS

LEDGERS - contain your company’s individual trade with customers (accounts).
ACCOUNTS PAYABLE - contain your company’s individual account with creditors.
LEDGERS - contain your company’s list of all fixed assets.
PLANT LEDGERS
PREPARE YOUR TAX You need good records to prepare your tax returns. These records must support the income, expenses, and
RETURNS. credits you report. Generally, these are the same records you use to monitor your business and prepare
your financial statement.
SUPPORT ITEMS You must keep your business records available at all times for inspection by the Bureau of Internal
REPORTED ON YOUR TAX Revenue. If the Bureau of Internal revenue examines any of your tax returns, you may be asked to explain
RETURNS the items reported. A complete set of records will speed up the examination.