Tag: Beginners guide to financial statements

Why and How to calculate current ratio

Investors judge a company by using various methods to know whether a company has adequate working capital. In this regard, current ratio is more useful than the net working capital. Current ratio (CR) is calculated by dividing current asset (CA) by current liabilities (CL). CR = CA / CL What is Current Assets and Current … Read More » "Why and How to calculate current ratio"

Income statement or Profit & loss account in financial statements

To present financial position for a period to stakeholders, companies prepare financial statements. It has four main parts: the balance sheet, income statement, cash flow and retained earnings / shareholders equity. In this article, we will be looking at the income statement: what it is, how its prepared and what is its purpose. Income statement … Read More » "Income statement or Profit & loss account in financial statements"

How cost of goods sold or COGS is calculated

Cost of goods sold is shown in the income statement of a company which is into manufacturing, wholesaling, retailing or into similar kind of business. Cost of goods sold or COGS is calculated by taking all direct expenses that a company has incurred to manufacture its product. After calculating COGS, you need to offset it … Read More » "How cost of goods sold or COGS is calculated"

What is Shareholders’ equity on the balance sheet

A company’s balance sheet has three major sections, assets, liabilities and stockholders’ equity. Liability represents the total debt of the company and owner’s capital represents shareholders’ ownership. Liabilities and owner’s capital are the two major sources of financing the assets of a company. Total asset must equal to the total liabilities and stockholders equity in … Read More » "What is Shareholders’ equity on the balance sheet"

Accounts payable on the balance sheet

Accounts payable is the amount that the company owes to its creditors or outsiders from whom it has brought goods or services. Total amount of accounts payable as on the date of balance sheet is classified under the head current liabilities. It arises because of the time lag between receipt of goods, supplies or services … Read More » "Accounts payable on the balance sheet"

Beginner’s Guide to Understanding Assets on the Balance Sheet

On the balance sheet you have three major components: assets, liabilities and owner’s equity. In this article, we will understand the term asset on the balance sheet and its components. An asset is a resource controlled by the enterprise as a result of past events from which future economic benefits are expected to flow to … Read More » "Beginner’s Guide to Understanding Assets on the Balance Sheet"

How to calculate Working capital of an organisation

Working capital is the difference between company’s total current asset and the total current liabilities. In simplified terms, It’s the amount of current asset that is left out if all current liabilities are paid. Working Capital = Current Assets – Current Liabilities Bankers, financial institutions and other creditors compute working capital to know the short-term … Read More » "How to calculate Working capital of an organisation"

Fixed assets on the company’s balance sheet

Asset held with the intention of being used for the purpose of producing goods or providing services and is not held for sale in the normal course of business is known as fixed assets. Fixed assets are shown on the balance sheet at its historical cost less accumulated depreciation. Cost of fixed assets Cost of … Read More » "Fixed assets on the company’s balance sheet"

What is Accounts receivable on the balance sheet

Accounts receivable for a company means the total money that is due from customers to which goods or services are sold on credit. If a company has sold goods or services to 100 customers in credit, then the total amount due to be received as on the balance sheet date is shown under the head … Read More » "What is Accounts receivable on the balance sheet"

Cash vs Accrual basis of accounting – which on is better

Financial accounting is a major source of information for success of business. Most important aspect of financial accounting system is referred to as recognition, it’s the decision about when to record revenue and expense transactions. We have two type of accounting used to record transactions, cash and accrual. In this article, we will be discussing … Read More » "Cash vs Accrual basis of accounting – which on is better"