Financial Statements of Limited Companies - Balance Sheet

1. Financial Statements of Limited Companies - Balance Sheet

2. learning objectivesfinancial statements the three key financial statementsthe main elements of the balance sheetthe main elements of the profit and loss accountthe main elements of the cash flow statement Session Summary (1)

3. a typical horizontal balance sheet formatcapital and reserves or shareholders’ equity liabilitiesthe relationship between risk and returnassetsa vertical format balance sheetvaluation of assets Session Summary (2)

4. explain the differences in accounting treatment of capital expenditure and revenue expenditureidentify the financial information shown in the financial statements of a company: balance sheet; profit and loss account; cash flow statementconstruct simple financial statementsoutline the structure of the balance sheet of a limited companyclassify the broad balance sheet categories of shareholders equity; liabilities; assets Learning Objectives (1)

5. outline the alternative balance sheet formatsprepare a balance sheet evaluate some of the alternative methods of asset valuationappreciate the limitations of the conventional balance sheet Learning Objectives (2)

6. Capital Expenditure and Revenue Expenditure Revenue expenditure relates to expenditure on those items where the full benefit of making that expenditure is received within the current accounting period Capital expenditure relates to the cost of acquiring, producing or enhancing fixed assets, the full benefit of which is received within future accounting periods

7. Limited companies are required to periodically prepare three main financial statements:balance sheetprofit and loss accountcash flow statement Financial Statements (1)

8. Financial statements are required forthe shareholdersthe Registrar of Companiesand are also used by, for exampleanalystspotential investorscustomerssuppliers Financial Statements (2)

9. The Three Key Financial Statements

10. The Main Elements of the Balance Sheet

11. The Main Elements of the Profit and Loss Account

12. The Main Elements of the Cash Flow Statement

13. A Typical Horizontal Balance Sheet Format

14. capitalshare premiumsretained earnings Capital and Reserves or Shareholders’ Equity

15. current, or short-term, liabilitiesshort-term financial debttrade creditors (or accounts payable)accrualslong-term liabilitieslong-term financial debtlong-term trade creditors (or accounts payable)provisions Liabilities

16. The Relationship Between Risk and Return

17. fixed assetstangible fixed assetsintangible fixed assetsfinancial assetscurrent assets Assets (1)

18. stocksdebtors (or accounts receivable)cashprepayments Assets (2)

19. A Vertical Format Balance Sheet (1)

20. fixed assets (FA) + current assets (CA) – current liabilities (CL) – long-term liabilities (LTL)=equity (E)FA + (CA – CL) – LTL = E  A Vertical Format Balance Sheet (2)

21. valuation of items within the balance sheet is covered by the Companies Act 1985/1989, accounting concepts and standardsproblems arise from differences in approach, and alternative methods used to value the different categories of assets and liabilities: Valuation of Assets (1) fixed assets brand names goodwill research and development costs stocks debtorsforeign currency transactions

22. There are limitations to the conventional balance sheet arising not only from the fact that it is an historical document, but from inconsistencies in its preparationdue todifferences between companies and industriesemployment of various asset valuation methodsoff-balance sheet financingwindow dressing Valuation of Assets (2)