Financial statement of company - class-XI

When B makes a payment to A, A receives cash (debit) and B's debt to A decreases. Decreasing an asset (accounts receivable) requires a credit to B's account.

Withdrawals represent the owner taking assets (usually cash) out of the business. This reduces the business's total assets and simultaneously reduces the owner's equity in the business.

Financial statement analysis is used by internal and external stakeholders to evaluate business performance and value. Financial accounting calls for all companies to create a balance sheet, income statement, and cash flow statement which form the basis for financial statement analysis.

Every business transaction gives two affects because financial accounting is based on double entry system of accounting. 

Accounting equation is the foundation of double entry system of book-keeping. It displays that all the assets are either financed by borrowing money or paying from the shareholder's equity. The balance sheet being the complex version shows explain the equation very clearly and it shows that total assets is equal to total liability plus shareholder's equity. Hence, recording of all business transactions is based on accounting equation.

Accounting equation states that assets is equal to equity. Equity consists of liabilities and shareholder's capital. Hence, it is a formula .i.e. Assets = Equity.

Business transactions are events that have a monetary impact on the financial statements of an organization. When accounting for these transactions, numbers in two accounts are recorded, where the debit column is on the left side and the credit column id on the right side.

Every business transaction affects two accounts as accounting is based on double entry system of accounting. For every debit there will be a credit and vice versa. 

Cash exists as a company's most liquid asset. Purchasing office equipment for cash will reduce a company's assets (i.e. reduction in cash in hand). Since owner's equity equals assets minus liabilities, owner's equity will be reduced as a result of buying office equipment with cash.

There are mainly three types of account: Real, Personal and Nominal accounts. Personal accounts are classified into three subcategories: Natural, Artificial and Representative. Bills Receivable and Bills Payable are personal accounts. Both these accounts represent debtors and creditors of a particular entity. The rule of personal account is Debit the receiver, Credit the giver. Suppose when Bills Receivable is issued, its debited because that represents debtor from whom money is receivable. In a way the entity has given those debtors a benefit i.e. credit so as per the rule  Bills Receivable A/c is debited. Hence, bills receivable is a personal a/c.

A typewriter is a fixed asset (office equipment). When an office asset is sold, the credit should be made to the asset account (Office Equipment) to remove its value from the books, not to a sales account which is reserved for inventory.

A drawing account is an accounting record maintained to track money withdrawn from a business by its owners. For example if proprietor withdraw cash from business then cash in hand account in decreased i.e. total assets decreased and it is recorded in the proprietor capital account as drawing which will reduce owner's equity. 

The car (asset) is worth 10,00,000. The payment of 1,00,000 reduces cash (asset), and the bill payable (liability) of 9,00,000 increases. The net increase in assets is 9,00,000 (10,00,000 - 1,00,000) and liabilities increase by 9,00,000.

Loss of stock by fire will lead to decrease in closing stock on the asset side of balance sheet and decrease in net income of profit and loss account i.e. decrease in owner's equity on the liability side of the balance sheet.

Selling furniture at book value results in no change to equity. Selling at a profit increases equity, while selling at a loss decreases it. Since the sale price is not specified, the effect on equity is uncertain.

Profits earned by the business are generally considered as retained earning, if not withdrawn by the owners. If firm generate the profits and retained in the business, cash of the firm increases which is part of the total assets. Parallel to this, all profits which are retained in the business are ultimately part of owners capital, hence it increases.

There are mainly three types of accounts: Real, Personal and Nominal accounts. Personal accounts are classified into three subcategories: Artificial, Natural and Representative. All assets of a firm, which are tangible or intangible, fall under the category "Real Accounts". Tangible real accounts are related to things that can b touched and felt physically, e.g., building, machinery, stock, land, etc. Intangible real accounts are related to things that can't be touched and felt physically, e.g., goodwill, patents, trademarks, etc.

Bonds are considered to be an investment and part of assets, similarly cash is also an asset. If RBI bonds are purchased that will increase the assets against the cash which is going to be reduced. Hence there will be no change in assets. 

Withdrawals by the proprietor reduce the cash or assets of the business and simultaneously reduce the owner's claim (equity) on the business assets.

Paying a liability involves using cash (an asset) to settle a debt. Therefore, both the liability and the asset (cash) decrease.

Purchasing furniture for cash involves an exchange of assets: cash (a current asset) decreases, and furniture (a fixed asset) increases. Since both are assets, the total asset value remains unchanged, but the composition shifts.

According to the accounting equation (Assets = Liabilities + Equity), if an asset increases, the balance must be maintained by either a decrease in another asset, an increase in a liability, or an increase in equity (capital).

Purchasing office equipment on credit increases the asset (equipment) and simultaneously increases a liability (accounts payable). The total assets increase.

When machinery is purchased for cash, one asset (cash) decreases while another asset (machinery) increases by the same amount. Therefore, the total value of assets remains unchanged.

When a debtor pays their dues, cash (an asset) increases and accounts receivable (another asset) decreases by the same amount. Consequently, there is no net change in total assets or liabilities.

The total asset (car) increases by 50,000. Cash (an asset) decreases by 10,000, and a liability (bills payable) increases by 40,000. The net increase in assets is 40,000 (50,000 - 10,000), which matches the increase in liabilities.

When income is earned and collected, cash (an asset) increases. Since income increases the owner's equity (capital), both assets and capital increase.

An unexpired expense (prepaid expense) represents a benefit to be received in the future, so it is recorded as an asset. The portion that has expired is recorded as an expense in the Profit and Loss account.

A cash purchase of supplies involves decreasing one asset account (Cash) and increasing another asset account (Supplies) by the exact same amount. Therefore, total assets remain unchanged, with no effect on liabilities or owner's equity.

Loss on sale. Debit cash for the amount received, debit all accumulated depreciation, debit the loss on sale of asset account, and credit the Machinery A/c.

When a debtor pays, cash increases and accounts receivable decreases. Total assets remain unchanged, and liabilities are unaffected.

Income earned but not yet collected is an accrued asset. Since the income was earned, it increases the owner's capital. Therefore, both assets and capital increase.