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Financial Statements
A financial statement is a record of the financial activities of a person or business entity where all related financial information are presented in an orderly manner and can be easily understood.
5,583 Questions
Users of the reports generally like to compare the current numbers to previous years to see how the company is growing and perform trend analysis to find out about certain issues, such as:
If Sales has only increased slightly from last year, why has the company's Accounts Receivable grown substantially? Could the company be having trouble collecting its receivables from customers?
In general, information from prior years helps users evaluate the financial statements.
What is the format for profit and loss account?
we show indirect expenses on debit side and indirect income on credit side.
indirect expenses like salaries, Rent, carriage outward, staffwalefare expenses and other expneses and indirect income like commission received, discount received and others.
if credit side more that debit side it means Net profit and debit side more than credit side it means Net loss.
Where is Profit and Loss post in balance sheet?
In case of profit Liability side.
In case of loss Asset side.
What are some specific liquidity and solvency ratios that you could use for analysis purposes?
The most basic liquidity ratio is the current ratio, which can be obtained by dividing the current assets by current liabilities
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Financial ratios are the nuts and bolts of financial statements. They could be a very handy tool for investors. But they are useful only if you know which nut and bolt fits where. Otherwise, handling so many financial ratios could be painful. A few Illustration: Jayachandran / Mint.
weeks ago, our friends Jinny and Johnny talked about one of the most important ratios - the P-E multiples. Now Johnny wants to understand some more ratios: liquidity ratios, turnover ratios, coverage ratios, profitability ratios or any other ratio he can lay his hands on.
Jinny: Hi, Johnny! You are looking quiet today. What's the matter?
Johnny: I have been looking at financial statements of a few companies but I don't really know how I can compare their strengths and weaknesses.
Jinny: Well, financial statements of companies are full of numbers that can tell you a lot about companies' strengths and weaknesses but the problem is that numbers talk with numbers only. So you can make an intelligent analysis only if you know how to establish the relationship between different set of numbers.
In this respect, financial ratios are of great help. They provide us relationships between two different sets of numbers. In a nutshell, they can tell us how effectively the company is managing its inventory or how quickly the company is receiving its sales proceeds. To find the right answers, we just need to choose the right ratio.
By comparing financial ratios we can very well compare the performance of two different companies or the present performance of the same company with its past performance or with the present performance of the industry as a whole.
Johnny: It seems ratios are of great use. Tell me about some key financial ratios.
Jinny: There are a lot many ratios, each having its own significance. Today I will tell you about just one of them, so let's start with the liquidity ratios, the favourite of lenders of companies. Liquidity ratios tell us how well placed a company is in meeting its short-term liabilities. The most basic liquidity ratio is the current ratio, which can be obtained by dividing the current assets by current liabilities. This ratio tells us how many times the current assets are worth in terms of the current liabilities. If the current ratio is 2, then it means that the current assets are worth two times the current liabilities. That means the company is in a position to comfortably pay its dues.
But, you may ask, what exactly is included in the current assets and liabilities? Well, current assets are assets which can be converted into cash within a short period of time, normally not exceeding one year. It includes many things, such as cash and bank balances, investments in different securities, money receivables, short-term loans and advances, inventory of raw materials as well as stock in progress and finished goods, etc.
Current liabilities are short-term obligations which the company has to meet within the next one year. It includes all short-term borrowings repayable within one year, instalments and interests of term loans, deposits maturing within one year, sundry creditors for raw materials, stores and consumable spares, etc. You can find the current assets and liabilities of the company from its balance sheet.
Johnny: What other liquidity ratios can be used?
Jinny: Well, we can also use the acid test or quick ratio to make a more strict measurement of liquidity. This ratio excludes inventory from the current assets of the companies. This means that only cash and bank balances, investment in different securities and money receivables are treated as current assets. Current liabilities include all the components that I have told you about.
Why are inventories excluded? This is done because it is difficult to convert inventories like raw materials or stocks in progress quickly into cash. Even finished goods can be converted into cash only with some time lag. The quick ratio tells us how well placed the company is in quickly meeting its short-term obligations. A company that has a high quick ratio is keeping its chequebook ready and will not ask its lenders to pick up unsold fish curry as repayment of its debt. Good for lenders.
But there is yet another ratio, called super acid test or super quick ratio, that measures liquidity in even more strict terms. This ratio treats only cash, bank deposits and investments in different securities as current assets and excludes money receivables from current assets. Money receivables are what others owe us and sometimes it is really difficult to get them back.
A company with a high super quick ratio is keeping most of the money in its own pocket. A good sign if the company owes you money, but not a very good sign for the owners of the company. A high super quick ratio means that the company is keeping its cash idle. That's not a very smart way of doing business.
Johnny: That's true, Jinny. Sitting on idle cash is like sitting on fire.
What:Financial ratios help in analysing the financial statements of companies.
Who: Lenders and investors examine liquidity ratios to understand how well a company is placed to meet its short-term liabilities.
How: Different liquidity ratios compare different elements of current assets with current liabilities.
Shailaja and Manoj K. Singh have important day jobs with an important bank. But Jinny and Johnny have plenty of time for your suggestions and ideas for their weekly chat. You can write to both of them at realsimple@livemint.com
What is Malaysia financial reporting standards?
The Malaysia financial reporting standards include a framework for annual periods. It started on January 1, 2012 with the exception of entities subject to the application of MFRS 141 on agriculture.
What is Drawing Corporate Action?
Redemption in part before the scheduled final maturity date of a security. Drawing is distinct from partial call since drawn bonds are chosen by lottery and results are confirmed to bondholder
What is a good annul increase in gross profit?
I would say between 2% and 10%. Of course income increases are rarely fair. The 2% increase may be given to someone who has been showing loyalty for twenty some years and is very honest. The 4 and 5% increases to someone who is really popular and knowledgable by company and higher ups standards. The 6 to 10% increases would most likely be given to the person with "everything" going on-Plenty of the right people in their corner, great connections nationwide, lots of experience or at least 10 years, and possibly already being overpaid for their services, plus very driven and a supportive mate that likes the company you work for and the company likes them. Even if you are driven, have creative great new ideas that would increase profit, loyal and longstanding work ethics-You will not get the high raise if you are not popular or considered by upper management-A golden girl or golden boy. Even if you are a tough cookie so to speak, unless God is in your corner-everything will certainly be short-lived.
How does purchases on account affect the balance sheet?
Purchases on account increases both Assets and Liabilities. Since a purchase on account becomes and account payable it is a liability account and the company's liabilities will increase the amount of the purchase. More than likely the purchase is for some type of equipment or supplies the company needs to operate and therefore is an asset to the company and that asset will increase by the same amount.
Let's say Company X purchases $5,000 in supplies from company Z on account, Company X will record the transaction as follows.
Supplies (dr) $5,000
Acc.Pay. Comp. Z (cr) $5,000
Remember Assets = Liabilities + Equity
Assets increase with a debit
Liabilities and Equity increase with a credit.
Is general reserve fund placed in asset side in a balance sheet?
General reserves are part of profit of the company for usable in future so it is the liability of company and shown in liability side of balance sheet.
Which budget summarizes management future plans for the acquisition of fixed assets?
Capital expenditures budget.
general ledger
Where does dividend revenue go on a multiple-step income statement?
Dividend revenue is shown as other revenue section of profit and loss section of income statement.
Are Accounts records of increases and decreases in individual financial statement items?
NO, The ledger does
yes, yes it is
What is called as petty cash book?
petty cash book is the book which is used for the purpose of recording the payment of petty cash expenses.
Explain how fundamental accounting concepts are used in preparing financial statements?
explain using various example, how the major accounting concepts are used in preparing financial statement??
What is the term applied to the excess of net revenue from sales over the cost of merchandise sold?
Gross Profit
The debit account titles in the account title column are written?
The debit account titles should always be capitalized and are not indented. The debit always comes first when recording a transaction.
A bank account for people who were born with diahorea
What does is mean by cost of goods sold?
COGS. An income statement figure which reflects the cost of obtaining raw materials and producing finished goods that are sold to consumers. Cost of Goods Sold = Beginning Merchandise Inventory + Net Purchases of Merchandise - Ending Merchandise Inventory.
What is due to related entities on a financial statement?
Due to Related Entities usually represents liabilities to a sister company (common ownership) or a subsidiary, but the relationship can also be via a director or other influential person or a close family member. Thus a company owned by the CEO's spouse would be related, as would another company that shared a director, even though there is no common ownership.
Which fixed asset their no charge depreciation?
Land is the only fixed asset which has no depreciation charge because land does not depreciate it's value.
Journal entry for goods written off?
The general ledger journal entry for the uncollectible bad debt would be considered a loss in ledger. Debit the account named Bad Debt Expense for the amount and credit the account Accounts Receivable for the amount.
