Income statement tells about firm’s revenues, expenses and profit/ loss in a period or an accounting year. In other words, it tells about firm’s probability in a particular period, it may be quarterly or annually. It is also called as profit and loss statement, revenue statement, statement of financial performance, earning statement, operating statement. The main purpose is to provide financial earnings of a firm for a specific period of time.Types of income statements −Single step income statement − Only one step is involved in this statement. That is, total revenue is subtracted from expenses.Multiple step − Several steps are ... Read More

Dr. ($)Cr. ($)Premises26000Furniture14000Vehicles7000Inventory3000Bank5300Capital45000Loan from bank8000Trade receivables1500Trades payables2800Net profit10000Drawings90006580065800SolutionThe solution is given below −We know the equation => Assets = capital + liabilitiesIn vertical style, it is re written as −Non-current assets + current assets = capital + non-current liabilities + current liabilities (Or)Non- current assets + current assets – current liabilities = capital + non- current liabilities$$Balance sheet As on 31st March 2015Non-current assetsPremises26000Furniture14000Vehicles700047000Current assetsInventory3000Trades receivables1500Bank53009800Current liabilitiesTrade payable(2800)7000Net current asset54000Non- current liabilitiesLoan from bank(8000)46000Capital45000Net profit10000Drawings(9000)46000

Dr. ($)Cr. ($)Premises26000Furniture14000Vehicles7000Inventory3000Bank5300Capital45000Loan from bank8000Trade receivables1500Trades payables2800Net profit10000Drawings90006580065800SolutionThe solution is given below −Balance sheet of a company As on 31st March XXXXNon-current assets$$Liabilities and capital$$Premises26000Capital45000Furniture14000Net profit10000Vehicles70005500047000Drawings(9000)46000Current assetsNon-current liabilitiesInventory3000Loan from bank8000Trade receivables1500Bank5300Current liabilities9800Trade payables28005680056800

Balance sheet is one of the important aspect in financial statements. Balance sheets tells about firm’s assets, liabilities and equity. By analysing balance sheet tracks firm’s performances, need of improvements, financial obligations etc. can be identified. We can also compare previous years’ balance sheet with present to know the firm’s improvements over the years.Balance sheet is divided into three parts. One each for assets, liability and equity. Left side of sheet consists of company assets and right side is divided into two parts, one for liabilities and other for owners’ equity. There will be a header and date at the ... Read More

In a business, decision making is very important aspect. Decision making can direct the business in a successful way or in an unsuccessful way. So, if a business wants to be successful, correct decisions should be taken in given circumstances.A lot of independent variables are involved in decision making mainly in financial aspects of the firm. So, there is a need of a tool or a technique to take appropriate decisions.Sensitivity analysis is a tool or a technique which tells about how independent variable impacts a dependent variable under current conditions. Investors use this tool to evaluate the result of ... Read More

Financial statements are the reports prepared by a firm to represent their financial activities in an accounting year. These gives how the firm carries its activities, maintain its cash flows and how well the firm is doing in the market.Nature of financial statements includes −Recording facts.Accounting conversions.Assumptions.Personal judgements.Objectives of financial statements are as follows −To provide information about economic resources of a firm.To provide information about changes in economic resources of a firm.To provide information about net resources of a firm.To provide information about estimation of earning potential of a firm.Types of financial statements includes −Balance sheetAssetsLiabilitiesEquityIncome statementIncomeExpensesProfit or lossCash ... Read More

Money is an important factor in the business. A firm should maintain a clear record about income and outing of money to evaluate and estimate their performance. A cash flow statement is a record, which records firms in and out flow of cash in detail. Monitoring, analysing and optimising the cash flow is called cash flow management.Importance of cash flow management is explained below:Solvency and credit worthiness.CAPEX and investment.Improves vendor ad employee relationships.Indicators of cash flow management are as follows −EBIT − It tells about earnings after leverage and tax expenses which are deducted. EBITDA tells about operating efficiency of ... Read More

The term forecasting refers to predication of future with the given circumstances. In forecasting, both macro and micro economic factors will be considered. Financial forecasting tells about company’s future action.Financial forecasting made through projected financial statements (income statements, balance sheets and cash flows). It helps to make decisions like capital investments, requirement of working capital, funds requirement etc.Features of forecasting include −Relates to future events.Depends on historical and current events.Predication of future events.Forecasting techniques.Quantitative and qualitative techniques are two types of financial forecasting techniques, which are explained below in detail.Quantitative techniquesCasual methods.Simple linear and multiple regression.Days sales technique.Percentage of sales ... Read More

Financial modelling is a process of creating company’s financial performances in a spread sheet or excel sheet. It is created based on historical performances and assumptions about future. Various numerical models and theories will be used by the financial analyst to forecast the future earnings of the company.Objectives of financial modelling are as follows −Valuing a business.Raising capital.Growing the business.Acquisition.Selling/divesting assets and business unit.Capital allocation.Budget and forecasting.Types of financial modelling are given below −Three statement model − Income statement, balance sheet and cash flow are called three statements. All the related formulas are linked in excel to create a financial ... Read More

Non-financial performances have great impact on non – tangibles of a firm. Many of these performances will not focus on the money generation, but they will have positive impact on finances related to business organisations.Some of them are explained below −Developments of new services/productsResearch and development goals will help goals of innovation, new product creation or improvements in existing products.Customer serviceFinding new ways to expand customer service by new way will yield customer appreciation, through which it will result in customer retention or addition of new customers.Training programsEmployee training programs helps in work performances, which creates effective and motivated staff. ... Read More