Balance sheet

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In financial accounting, a balance sheet or statement of financial position is a summary of
the financial balances of a sole proprietorship, a business partnership, a corporation or other
business organization, such as an LLC or an LLP. 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".
[1]
Of the three basic financial
statements, the balance sheet is the only statement which applies to a single point in time of a
business' calendar year.
A standard company balance sheet has three parts: assets, liabilities and ownership equity.
The main categories of assets are usually listed first, and typically in order of liquidity.
[2]

Assets 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.
[3]

Another way to look at the balance sheet equation is that total assets equals liabilities plus
owner's equity. Looking at the equation in this way shows how assets were financed: either
by borrowing money (liability) or by using the owner's money (owner's or shareholders'
equity). Balance sheets are usually presented with assets in one section and liabilities and net
worth in the other section with the two sections "balancing".
A business operating entirely in cash can measure its profits by withdrawing the entire bank
balance at the end of the period, plus any cash in hand. However, many businesses are not
paid immediately; they build up inventories of goods and they acquire buildings and
equipment. In other words: businesses have assets and so they cannot, even if they want to,
immediately turn these into cash at the end of each period. Often, these businesses owe
money to suppliers and to tax authorities, and the proprietors do not withdraw all their
original capital and profits at the end of each period. In other words businesses also have
liabilities.


A journal entry, in accounting, is a logging of transactions into accounting journal items.
The journal entry can consist of several recordings, each of which is either a debit or a credit.
The total of the debits must equal the total of the credits or the journal entry is said to be
"unbalanced". Journal entries can record unique items or recurring items such as depreciation
or bond amortization. In accounting software, journal entries are usually entered using a
separate module from accounts payable, which typically has its own subledger that indirectly
affects the general ledger. As a result, journal entries directly change the account balances on
the general ledger.
Contents
1 Recording a journal entry
2 See also
3 References
4 External links
Recording a journal entry
Some data commonly included in journal entries are: Journal entry number; batch number;
type (recurring vs. nonrecurring); amount of money, name, auto-reversing; date; accounting
period; and description. The accounts to be credited are indented. Typically, accounting
software imposes strict limits on the number of characters in the description; a limit of about
30 characters is not uncommon. This allows all the data for a particular transaction in a
journal entry to be displayed on one row.


An income statement (US English) or profit and loss account (UK English)
[1]
(also referred
to as a profit and loss statement (P&L
), revenue statement, statement of financial performance, earnings statement, operating
statement, or statement of operations)
[2]
is one of the financial statements of a company and
shows the companys revenues and expenses during a particular period.
[1]
It indicates how the
revenues (money received from the sale of products and services before expenses are taken
out, also known as the top line) are transformed into the net income (the result after all
revenues and expenses have been accounted for, also known as net profit or the bottom
line). It displays the revenues recognized for a specific period, and the cost and expenses
charged against these revenues, including write-offs (e.g., depreciation and amortization of
various assets) and taxes.
[2]
The purpose of the income statement is to show managers and
investors whether the company made or lost money during the period being reported.
One important thing to remember about an income statement is that it represents a period of
time like the cash flow statement. This contrasts with the balance sheet, which represents a
single moment in time.
Charitable organizations that are required to publish financial statements do not produce an
income statement. Instead, they produce a similar statement that reflects funding sources
compared against program expenses, administrative costs, and other operating commitments.
This statement is commonly referred to as the statement of activities. Revenues and expenses
are further categorized in the statement of activities by the donor restrictions on the funds
received and expended.
The income statement can be prepared in one of two methods.
[3]
The Single Step income
statement takes a simpler approach, totaling revenues and subtracting expenses to find the
bottom line. The more complex Multi-Step income statement (as the name implies) takes
several steps to find the bottom line, starting with the gross profit. It then calculates operating
expenses and, when deducted from the gross profit, yields income from operations. Adding to
income from operations is the difference of other revenues and other expenses. When
combined with income from operations, this yields income before taxes. The final step is to
deduct taxes, which finally produces the net income for the period measured.
A ledger
[1]
is the principal book or computer file for recording and totaling economic transactions
measured in terms of a monetary unit of account by account type, with debits and credits in
separate columns and a beginning monetary balance and ending monetary balance for each
account.
Overview
The ledger is a permanent summary of all amounts entered in supporting journals which list
individual transactions by date. Every transaction flows from a journal to one or more
ledgers. A company's financial statements are generated from summary totals in the
ledgers.
[2]

Ledgers include:
Sales ledger, records accounts receivable. This ledger consists of the financial transactions
made by customers to the company.
Purchase ledger records money spent for purchasing by the company.
General ledger representing the 5 main account types: assets, liabilities, income, expenses,
and equity.
For every debit recorded in a ledger, there must be a corresponding credit so that the debits
equal the credits in the grand totals.
Profit and loss appropriation accounts are necessary for businesses, especially partnerships,
because they help account for the expenditures and income that are included in profit and loss
statements. These accounts should not be confused with the typical profit and loss account,
but rather seen as an extension of it. Whereas the former is more general in nature, the profit
and loss appropriation account is far more specific.
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Profit and Loss Account
The profit and loss account serves the purpose of showing how much a company has
available, in terms of surplus funds, at the end of a specific accounting period. These
accounts do not necessarily provide a specific answer as to how funds will be spent.
However, they do provide an idea of what money is available for distribution among partners
or for the purpose of being held in a reserve account until the decision has been made
regarding how to spend the surplus. If no surplus exists, the statement indicates the losses for
the accounting period.
Appropriation
The profit and loss appropriation account should be treated as a separate account from the
profit and loss account. The appropriation account is designed to provide an indication of
how profit transferred from the profit and loss account is spent. Appropriations are generally
placed into one of four broad categories: funds designated for removal by partners, capital
reserves, reserves earmarked to improve capital and surplus funds to be carried into the next
accounting period.
In macroeconomics and international finance, the capital account (also known as the
financial account) is one of two primary components of the balance of payments, the other
being the current account. Whereas the current account reflects a nation's net income, the
capital account reflects net change in ownership of national assets.
A surplus in the capital account means money is flowing into the country, but unlike a
surplus in the current account, the inbound flows effectively represent borrowings or sales of
assets rather than payment for work. A deficit in the capital account means money is flowing
out of the country, and it suggests the nation is increasing its ownership of foreign assets.
The term "capital account" is used with a narrower meaning by the International Monetary
Fund (IMF) and affiliated sources. The IMF splits what the rest of the world calls the capital
account into two top-level divisions: financial account and capital account, with by far the
bulk of the transactions being recorded in its financial account.
A trial balance is a list of all the General ledger accounts (both revenue and capital)
contained in the ledger of a business. This list will contain the name of the nominal ledger
account and the value of that nominal ledger account. The value of the nominal ledger will
hold either a debit balance value or a credit balance value. The debit balance values will be
listed in the debit column of the trial balance and the credit value balance will be listed in the
credit column. The profit and loss statement and balance sheet and other financial reports can
then be produced using the ledger accounts listed on the trial balance.
The name comes from the purpose of a trial balance which is to prove that the value of all the
debit value balances equal the total of all the credit value balances. Trialing, by listing every
nominal ledger balance, ensures accurate reporting of the nominal ledgers for use in financial
reporting of a business's performance. If the total of the debit column does not equal the total
value of the credit column then this would show that there is an error in the nominal ledger
accounts. This error must be found before a profit and loss statement and balance sheet can
be produced.
The trial balance is usually prepared by a bookkeeper or accountant who has used daybooks
to record financial transactions and then post them to the nominal ledgers and personal ledger
accounts. The trial balance is a part of the double-entry bookkeeping system and uses the
classic 'T' account format for presenting values