Balance sheet is a statement; it is not an account.
Balance sheet is a representation of the financial position of an organization for specified date.
It has liabilities and assets sides.
Liabilities are separated into stockholders’ equity plus liabilities.
It provides information about stockholders’ equity and claim of creditors in liabilities side.
It shows financial position of organization is assets side.
All debit balances are shown in assets and all credit balance are shown in liabilities side.
The lists should be arranged in headings in assets and liabilities side.
The balance sheet is a measurement of assets, liabilities and stockholders’ equity of a business entity on a given date.
Extracted Balance Sheet under IFRS
LIABILITIES AND EQUITY |
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Current Liabilities: |
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Account payable |
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Interest payable |
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Other current liabilities |
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Non-current Liabilities: |
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Long-term debt |
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Other non-current liabilities |
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Shareholders’ Equity: |
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Common stock |
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Preferred stocks |
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Additional paid–in capital-common |
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Additional paid–in capital-preferred |
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Retained earnings |
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Less: Treasury stocks |
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Total liabilities and equities |
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Extracted Balance Sheet under NFRS
EQUITY |
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Common stock |
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Preferred stocks |
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Additional paid–in capital-common |
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Additional paid–in capital-preferred |
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Retained earnings |
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Less: Treasury stocks |
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Total Equity |
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LIABILITIES |
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Non-Current Liabilities: |
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Long-term loan |
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Other non-current liabilities |
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Total non-current liabilities (a) |
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Current Liabilities: |
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Creditors |
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Interest payable |
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Other current liabilities |
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Total current liabilities (b) |
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Total Liabilities (a+b) |
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TOTAL EQUITY AND LIABILITIES |
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Accounting Equation |
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Journal Entries in Nepali |
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Journal Entries |
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Journal Entry and Ledger |
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Ledger |
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Subsidiary Book |
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Cashbook |
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Trial Balance and Adjusted Trial Balance |
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Bank Reconciliation Statement (BRS) |
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Depreciation |
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Accounting Process |
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Accounting for Long Lived Assets |
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Analysis of Financial Statement |
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Stockholders’ equity is one of the three major sections of a corporation’s balance sheet.
Stockholders’ equity is the difference between the reported amounts of a firm’s assets and liabilities.
It is subdivided into four components:
(a) Common stocks
(b) Preferred stocks
(b) Additional paid-in capital (share or security premium)
(c) Retained earnings
(d) Treasury stock, if any.
Common stock is also known as common stocks or ordinary shares.
Common stock is the base capital of a limited company or limited liabilities company (LLC).
Common stockholders have voting power in shareholder elections.
Preferred stock is also included in stockholders’ equity.
Preferred stock is issued only after issuing common stock.
Generally, preferred stockholders do not have voting rights to choose board of directors of the company.
They receive dividends from profits before common stockholders.
In the case of a company’s going to liquidation (wind up), preferred stockholders are given priority in claiming assets.
If the stock had a par value, the total par value of each class of stock is reported in a separate ‘par’ account.
Preferred stocks are also called preference shares.
These stocks can be issued only after common stocks.
The persons who purchase preferred stocks are called preferred stockholders (preference shareholders).
Generally, these stockholders have preference rights in dividend received.
Dividend rates are pre fixed.
Preferred stockholders get dividend after interest on debenture but before common stockholders.
At the time of winding up, preferred stockholders get money after all the debts but before common stockholders.
There are 8 types of preferred stocks.
Additional paid-in capital is also known as share premium or contributed capital.
Additional paid-in capital is the amount paid in excess of the par value of both preferred and common stock.
Suppose, the par value of a stock is $100 but company issues it at $110.
Here, $10 is additional paid-in capital which is $110 issued price – $100 par value.
Additional paid-in capital may be on common stocks, preferred stocks and treasury stocks.
Retained earnings are the cumulative profits of the company.
It is the primary component of a company’s earned capital.
If there is any cumulative loss, it should be deducted from cumulative net income.
If company has declared cash dividend and stock dividend, they are also deducted from retained earnings.
This basic financial statement is important to the shareholders, the board of directors, potential investors and creditors.
Retained Earnings Statement
Particulars |
Amount $ |
Amount $ |
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Retained earnings on 1 Jan 2021 |
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xxxx |
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Add: |
Net profit during the year |
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xxxx |
Less: |
Cash dividend and interim dividend |
xxxx |
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Stock dividend |
xxxx |
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General reserve (if given in adjustment) |
xxxx |
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Capital reserve (if given in adjustment) |
xxxx |
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Retained earnings on 31 Dec 2021 |
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xxxx |
Keep in Mind
Stockholders’ equity (shareholders fund, permanent capital, net worth) |
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Common stocks |
Retained earning |
Less: |
Preferred stocks |
Profit and loss (Cr) |
Preliminary expenses |
Share premium |
Dividend equalization fund |
Profit and loss (Dr) |
Share forfeiture |
Sinking fund |
Underwriting commission |
Capital reserve |
Compensation fund |
Loss on issue of debentures |
General reserve |
Investment fund etc |
Discount on issue of debentures etc |
Reserve and surplus |
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Treasury stock is the shares repurchased by the issuing firm and intended for resale to the public.
When a firm has a large amount of idle cash, the firm may choose to purchase some of its outstanding shares.
If the firm purchases a significant number of its own shares, firm’s earning per share may increase.
When the firm does not retire (redemption) those own purchasing shares, these shares are known as treasury stock.
It represents the difference between the number of issued shares and the number of outstanding shares.
In another words, treasury stock consists of shares issued but not outstanding.
Thus, treasury stocks are not included in earning per share or dividend calculations.
Treasury stockholders do not have voting rights.
By buying back its stock, a firm reduces the number of shares outstanding which gives each shareholder a larger piece of earnings.
Similarly, the lower number of shares can improve EPS and other ratios.
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