Oracle Apps General Ledger provided two critical reports for the Business. Its important to know
the basics of these reports.
Balance sheets:
The relationship between balance sheets and profit and loss accounts
Profit and Loss:
The profit and loss (P&L) account summarizes a business' trading transactions - income, sales and expenditure - and the resulting profit or loss for a given period.
The balance sheet, by comparison, provides a financial snapshot at a given moment. It doesn't show day-to-day transactions or the current profitability of the business. However, many of its figures relate to - or are affected by - the state of play with P&L transactions on a given date.
Any profits not paid out as dividends are shown in the retained profit column on the balance sheet.
The amount shown as cash or at the bank under current assets on the balance sheet will be determined in part by the income and expenses recorded in the P&L. For example, if sales income exceeds spending in the period preceding publication of the accounts, all other things being equal, current assets will be higher than if expenses had outstripped income over the same period.
If the business takes out a short-term loan, this will be shown in the balance sheet under current liabilities, but the loan itself won't appear in the P&L. However, the P&L will include interest payments on that loan in its expenditure column - and these figures will affect the net profitability figure or 'bottom line'.
Using balance sheet and P&L figures to assess performanceMany of the standard measures used to assess the financial health of a business involve comparing figures on the balance sheet with those on the P&L.
Accounting periods:
A balance sheet normally reflects a company's position on its accounting reference date (ARD), which is the last day of its accounting reference period. The accounting reference period, also known as the financial year, is usually 12 months. However, it can be longer or shorter in the first year of trading, or if the ARD is subsequently changed for some reason.
Companies House automatically sets the first ARD. Thus the end of the first financial year is the first anniversary of the last day of the month in which the company was formed. If you decide to change this, you will need to notify Companies House.
Contents of the balance sheet
A balance sheet shows:
fixed assets - long-term possessions
current assets - short-term possessions
current liabilities - what the business owes and must repay in the short term
long-term liabilities - including owner's or shareholders' capital
The balance sheet is so-called because there is a debit entry and a credit entry for everything (but one entry may be to the profit and loss account), so the total value of the assets is always the same value as the total of the liabilities.
Fixed assets include:
tangible assets - eg buildings, land, machinery, computers, fixtures and fittings - shown at their depreciated or resale value where appropriate
intangible assets - eg goodwill, intellectual property rights (such as patents, trade marks and website domain names) and long-term investments
Current assets are short-term assets whose value can fluctuate from day to day and can include:
stock
work in progress
money owed by customers
cash in hand or at the bank
short-term investments
pre-payments - eg advance rents
Current liabilities are amounts owing and due within one year. These include:
money owed to suppliers
short-term loans, overdrafts or other finance
taxes due within the year - VAT, PAYE (Pay As You Earn) and National Insurance
Long-term liabilities include:
creditors due after one year - the amounts due to be repaid in loans or financing after one year, eg bank or directors' loans, finance agreements
capital and reserves - share capital and retained profits, after dividends (if your business is a limited company), or proprietors capital invested in business (if you are an unincorporated business)
the basics of these reports.
Balance sheets:
The relationship between balance sheets and profit and loss accounts
Profit and Loss:
The profit and loss (P&L) account summarizes a business' trading transactions - income, sales and expenditure - and the resulting profit or loss for a given period.
The balance sheet, by comparison, provides a financial snapshot at a given moment. It doesn't show day-to-day transactions or the current profitability of the business. However, many of its figures relate to - or are affected by - the state of play with P&L transactions on a given date.
Any profits not paid out as dividends are shown in the retained profit column on the balance sheet.
The amount shown as cash or at the bank under current assets on the balance sheet will be determined in part by the income and expenses recorded in the P&L. For example, if sales income exceeds spending in the period preceding publication of the accounts, all other things being equal, current assets will be higher than if expenses had outstripped income over the same period.
If the business takes out a short-term loan, this will be shown in the balance sheet under current liabilities, but the loan itself won't appear in the P&L. However, the P&L will include interest payments on that loan in its expenditure column - and these figures will affect the net profitability figure or 'bottom line'.
Using balance sheet and P&L figures to assess performanceMany of the standard measures used to assess the financial health of a business involve comparing figures on the balance sheet with those on the P&L.
Accounting periods:
A balance sheet normally reflects a company's position on its accounting reference date (ARD), which is the last day of its accounting reference period. The accounting reference period, also known as the financial year, is usually 12 months. However, it can be longer or shorter in the first year of trading, or if the ARD is subsequently changed for some reason.
Companies House automatically sets the first ARD. Thus the end of the first financial year is the first anniversary of the last day of the month in which the company was formed. If you decide to change this, you will need to notify Companies House.
Contents of the balance sheet
A balance sheet shows:
fixed assets - long-term possessions
current assets - short-term possessions
current liabilities - what the business owes and must repay in the short term
long-term liabilities - including owner's or shareholders' capital
The balance sheet is so-called because there is a debit entry and a credit entry for everything (but one entry may be to the profit and loss account), so the total value of the assets is always the same value as the total of the liabilities.
Fixed assets include:
tangible assets - eg buildings, land, machinery, computers, fixtures and fittings - shown at their depreciated or resale value where appropriate
intangible assets - eg goodwill, intellectual property rights (such as patents, trade marks and website domain names) and long-term investments
Current assets are short-term assets whose value can fluctuate from day to day and can include:
stock
work in progress
money owed by customers
cash in hand or at the bank
short-term investments
pre-payments - eg advance rents
Current liabilities are amounts owing and due within one year. These include:
money owed to suppliers
short-term loans, overdrafts or other finance
taxes due within the year - VAT, PAYE (Pay As You Earn) and National Insurance
Long-term liabilities include:
creditors due after one year - the amounts due to be repaid in loans or financing after one year, eg bank or directors' loans, finance agreements
capital and reserves - share capital and retained profits, after dividends (if your business is a limited company), or proprietors capital invested in business (if you are an unincorporated business)
2 comments:
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