Basics of Accounting
There are 3 financial statements you should know about when you begin your Finance journey. These throw light on different areas of the business and are needed together to give you an idea of the business of a company.
- Balance Sheet — Records assets (tangible/intangible resources owned) and liabilities(obligation to pay). Known as a statement including what you own and owe to stakeholders. This is a snapshot or at a specific point in time. It is termed as a ‘balance sheet’ as it mentions both the sources and uses of these businesses. It is a cumulative/additive sheet and gives an idea of the previous years.
Sources of funds include -
a. Share Capital/Equity
b. Debt
c. Capital on advance
Their Uses or Applications include -
a. Short term Assets/Current Assets (Tangible and Intangible)
b. Long term Assets/Non-current Assets (Tangible and Intangible)
Any money that you raise is either used or saved as cash.
2. Profit and Loss/Income Statement — Records what a company earns and expenses made to procure and consume goods and services. These include all business transactions. This is like a video or periodic. These are like the report card of a company for a period.
3. Cash flow Statement — Records inflows and outflows of cash/funds in the company. These cash transactions involve both the banker and auditor. This is like a video or periodic.
Cash flows are of 3 types -
- Operating
2. Investing
3. Financing
Inflows -
Outflows -
Receivables refer to the money you had to paid that you have not yet
Payables refer to the money that you should have received but have not.
In the long run, both the cash inflow and net profit should increase.
Sources:
- FinShiksha
