 Namaste, we have already discussed format of balance sheet. So you know that amongst the financial statements balance sheet has a very important role and it shows the financial position as at a particular date. Now let us do a small case or a problem where we will try to prepare the balance sheet from given balances. Later on we will do it for a company in a company format but this is a small exercise which wherein we will not emphasize too much on format, we will just try to prepare the basic structure of balance sheet. You have a printout of this. So have a look at it and try to solve the case along with me. Now this is a balance sheet, they have given list of balances and from this you are required to prepare a balance sheet. So how shall we go about? We know there are two sides of balance sheet. One represents liabilities and the other represents assets, liabilities are the way the money has been sourced and assets are the resources which are required for the business. So for each and every item go on marking it as an asset item or a liability item. For example capital, where will you capital be recorded, where will you take it? This is a liability item, so mark it as L, like that try to mark each and every item. So creditors, creditors is what type of item? Creators represents the payables for our supply, somebody has supplied us good and we have to pay them, right now it is a liability, so we will mark it as L, bank overdraft. Here the bank has allowed us to draw excess beyond our balance, again it is one more liability, so L, cash in hand, this is A, furniture, A, debtors, these are receivables from customers, so this is A, plant and machinery or plant it is A, drawings, so money is put in by the owners that is capital, if they take out the money from the business it is called as a drawing. So this is not exactly asset but we will mark it as minus L, so it is a L item but it should be reduced from L, system is not allowing me to mark it that way, now I think it is fine. Creditors, creditors also represent L, closing stock, this is A, bills payable is a liability, bills receivables and may be other assets but it is an asset and net profit, is it an asset or liability, should it be written in the balance sheet, net profit or reserves represents the accumulated profit of the undertaking, so it is one of the liabilities, it belongs to the owners, we will add it to the owners funds but right now mark it as liability. So we have marked all the items, now based on this prepare the balance sheet, you can do the exercise on your own, you can pause the video here and prepare the balance sheet and then we will check the solution. So ready with the solution, I am just showing you the solution directly, I hope you have made it and you are rechecking it, so we have listed out all the assets, plant, furniture these are part of fixed assets, debtors, closing stock, bills receivable and cash in hand these are all current assets, you can see it is as per the order of permanence, the most permanent asset is put up and the most liquid asset is put at the last, capital minus drawings that is why we had put it as minus L, then we have got two creditors here, creditors 1 lakh, again creditors 25,000 because these are probably long term creditors and these are short term creditors, bank overdraft and bills payables and these last creditors these are all current assets, current liabilities sorry, getting it, so this is the balance sheet as on that particular date using the balances which we had been given. Now let us go to the next problem, this is even more interesting because here based on the information as is made available, we are trying to prepare the balance sheet. Now we have been given a few raw transactions and directly from raw transaction, we should make balance sheet on respective date on each date. Now Jalaram starts a store on 1st January 2012 with investment of 2 lakhs from his personal savings, he decides to call the venture as Messer's Hanuman stores. On 2nd January the stores purchases a shop for 5 lakhs, paying 1 lakh rupees in cash and signing a mortgage for 4 lakhs. So a shop is purchased, down payment of 1 lakh is made in cash and a mortgage is signed that means a loan is obtained for 4 lakhs, so that shop of 5 lakhs can be paid. Now the store purchases mercantize worth 50,000 in cash and 1 lakh 50,000 on credit. So the payment for this 1 lakh 50,000 will be made later on, but we will have to record it right now on the date the transaction is entered it is recorded, the payment is made as and when it becomes due. Now he sells half the mercantize for 1 lakh 50,000 in cash, he sells the remaining inventory for 75,000 on credit for 15 days to Mr. Bharat. On 7th January inventory of 150 that is the next purchase is made from Lakshman on credit of rupees 30 of 30 days and on 10th January another inventory of that inventory, inventory of 1 lakh was sold for 120 in cash. Now here not only we have to make balance sheet, we have to make balance sheet on the respective dates, I will request you to take print out of this and solve it yourself, you can take a pause here solve it and then we are going to check answer for every transaction. So you have to make series of balance sheets on 1st Jan, 2nd Jan, 3rd Jan, 4th Jan and so on. So you are ready, in the interest of time I am immediately showing you the solution, I hope you are ready with the solution by now so that you can cross check it. So the first transaction was opening of a new business with investment of 2 lakhs from personal savings that is a capital with Jalaram has brought in. So the day 1 that is on 1st January the balance sheet shows capital of 2 lakhs, Mr. Jalaram would have brought in cash of 2 lakhs, so we are showing cash of 2 lakhs, the balance sheet tallies at 2 lakhs, so total of liabilities matches the total of assets. Now this precondition should be there on all the days, now the next transaction. The next transaction is there is a purchase of shop for 5 lakhs, down payment is made for 1 lakh and remaining is in the form of mortgage loan of 4 lakhs. So now in the balance sheet on 2nd January we have added a shop of 5 lakhs and mortgage loan payable is shown as 4 lakhs and the cash balance which was earlier 2 lakhs has been reduced now by 1 lakh and now it is stands at 1 lakh. Getting it the capital which was 2 lakhs remains unchanged. So the balance sheet on 2nd January now has a total of 2 lakhs both of assets and liabilities, the balance sheet is stalling, are you getting it? Now you will observe one thing that the earlier balance of capital of 2 lakhs which was as on 1st January will be continued in the balance sheet of 2nd January. This happens because balance sheet is a cumulative statement. It is not a statement of any one transaction. As on 1st January since it was only one transaction we made a fresh balance sheet but on 2nd January we continue earlier balance of capital of 2 lakhs and we continue to write it on 2nd January. In fact as long as it is not paid off it will be continued to be shown in the balance sheet, this balance sheet and in the subsequent balance sheets also. Are you getting it? These things are very simple but since this is a very first problem which we are discussing I am just going slow. So it is clear to you. Now let us go to the 3rd transaction, 3rd transaction now there is a purchase of mercantiles that is goods are purchased 50,000 in cash and remaining 150 on credit. So on 3rd January this is how the balance sheet looks like. Now the cash balance has come down to 50,000, see earlier it was 1 lakh, since we have made a payment of 50,000 for goods the cash will come down to 50, shop remains unchanged at 5 lakh, mercantiles that is inventory is 2 lakhs now it is also called as goods, 150 is purchased on credit, 50,000 is purchased on cash. So total goods are 2 lakhs, capital 2 lakhs, payable for mortgage this is continued in the last time from last time that is 4 lakhs and payables now these are trade payables that is creditors also sometimes it is called it is now 1 lakh 50,000, total is 7 lakh 50,000. So are you getting it? This is how slowly the balance sheet will get built and more and more items will get added. Now next transaction on 4th January half of the mercantiles inventory sold for 1 lakh 50,000 in cash. Now on 4th of January the cash balance increases from 50,000 plus 150 it becomes 2 lakhs, shop 5 lakhs unchanged mercantiles earlier it was 2 lakhs now half of it remains so it has become 1 lakh, capital unchanged 2 lakhs mortgages unchanged at 4 lakhs, payables unchanged. Now there is a addition here because the transaction was unique compared to our earlier transactions inventory of 1 lakh was sold for 1 lakh 50,000. So we get cash of 2 lakhs I mean 50,000 was the earlier cash new 150 was added I will just write it here for more clarity. So we got fresh cash of 150 and mercantiles or inventory or goods of 1 lakh were given to customers. So inventory of 1 lakh sold for 150 that means we got 50,000 extra that 50,000 represents profit. So in balance sheet we will write it as profit and loss account 50,000 getting it. Now let us go to next transaction on 6th January the remaining half of the inventory is sold for 75,000. So now cash is 2 lakhs shop 5 lakhs no changes here mercantiles or inventory which was 1 lakh earlier half of it is sold so remaining is now 50,000 a new asset that is receivables is added. So you can see inventory of 50,000 is reduced and receivables of 75 are added. We have not yet received any cash but we are going to receive it in future still we will show 75,000 in the balance sheet. So there is a difference of 25,000 which is further profit. So profit and loss account which was 50,000 earlier is now 50 plus 25 becomes 75. So capital 2 lakhs, mortgages 4 lakhs and payables 150 they are same as in earlier balance sheet and now the balance sheet total has become 8 lakh 25,000. Now 7th January inventory worth 150 was purchased from Lakshman on credit of 30 days. So this is as on 7th January since the new inventory is purchased inventory has become 2 lakhs this is a transaction on credit so payables will now become 3 lakhs earlier it was 150, 150 plus 150 it becomes 3 lakhs all other balances are unchanged. So now the total becomes 975. Now the last transaction on 10th January inventory costing 1 lakh was sold for 120 in cash. So 10th January now the cash balance increases by 120 it was 2 lakhs earlier becomes 320 mercantize or inventory which was 2 lakhs of that 1 lakh is reduced. So it becomes 1 lakh shop and receivables are unchanged because this was a cash transaction. The profit which was 75 we are going to further at 20,000 to profit capital payables for mortgage and payables that is trade payables remain unchanged the total becomes 107 500. Are you getting? This was a very simple exercise we have seen a series of transactions and made a series of balance sheets for it in real life it is not necessary to make balance sheet every day you can make it at the end of the period at the end of 3 months or at the end of 1 month but within the system this is how the balance sheet gets updated or revised. So this is only one problem where we are looking at series of balance sheets are you getting it? Let us go to the third case. Now in the third case we have been given several balances and from these balances you are required to make a vertical balance sheet later on for a company we are going to make a detailed balance sheet. This is a very simple exercise where we use only a skeleton type of pattern or a structure and we will try to make a vertical balance sheet. So have a look at these items go through each and every item as we did in the first case we will mark every item as asset and liability and then prepare a balance sheet. One note is also given that bad debts recovered is not included in cash balance perhaps they do not know where to write it. So if you start from sales where will you record it in the balance sheet? Actually sales is a profit and loss item so it should not be recorded anywhere in the balance sheet it is just given to you as an extra balance. So we will just mark it as PL those of you who are interested in preparing profit and loss account you can make it as a extra work but right now we are not going to use this because we are only going to focus on the balance sheet. Return outward this is also a profit and loss item capital is a balance sheet item we will write it on liability side, discount CR this is the discount which we have received it is a PL item creditors a liability item cash at bank credit they have given that means this is a bank overdraft normally cash at bank is if we keep cash in bank it becomes a debit balance it becomes a asset but here cash at bank credit that means we have drawn excess from the bank or it is also known as bank overdraft it is a type of loan which bank has given us so we will mark it as L loan credit so we have got loan so again we will mark it as L bad debts recovered this is a unique item first of all everybody has understood what is back debt recovered when we sell goods it gets converted into receivables or debtors you can see here there is a debtors balance. Now from those debtors we are supposed to receive cash in case a particular debtor becomes nonpaying or becomes bankrupt so for banks the loan which was given to Malia became back debt now of course government very smartly has caught it and is recovering the money from Malia but otherwise the money from given to Malia was more or less like a bad debt. So in case of this party Mesa Sita enterprises they would have given some loan and the loan is not receivable that is why they consider it as a bad debt earlier but now that bad debt they are able to recover they have received that money as a bad debt but they do not know where to record it so they have not included it in cash balance so now we are going to do two things we are going to include it in the cash balance out so this is a special case this is not as such for bad debt recovered this is definitely bad debt recovered but since the money is not shown in the cash we are going to add it in the cash so I have written it plus to cash a a means on asset side outstanding expenses that means we have take we have incurred some expense like say electricity bill but we have not yet paid it so it becomes a liability net loss companies or the enterprise is suffering loss so where should we write this loss will it go to balance sheet yes because if there is a profit it is added to liability side if there is a loss we will reduce it from liability so we will mark it as minus L salary this is a PL item samples these are free samples which are distributed it is a marketing expense so we will mark it as PL land and building this is a asset item I think most of the items are getting clear to you now on this side also we have got few balances we will not go for marking every item I hope you will be able to market yourself and based on this let us go for preparation of balance sheet so you can pause your video here and I will show you the solution please first solve it and then check with my solution okay so let us have a look at the solution this is the balance sheet for Messer Sita enterprises so always have a habit of writing it on top either we can write it as liability on one side and asset on one side or we are right can write it in the vertical form right now we are making it in vertical form so we will start with liabilities have a look at the items as we have marked in the earlier sheet so the capital is marked as L so we will start with capital there is a loss which is reduced from capital so capital minus loss the value of capital or the amount of capital is reduced then one heading called borrowed fund is made we have written loan in that total capital employed then we have listed all the assets under the heading fixed assets first of all building furniture and goodwill please check with the solution which you have made then in current assets we have got cash but keep in mind we have the balance of cash was given as 6000 this bad debt recovered was added to cash balance because it was not added by them earlier so now we will write 6750 then debtors then closing stock so we get total of current assets from current assets we are reducing the current liabilities creditors outstanding expense bank overdraft total current liabilities and we get the net balance as net current assets 13 050 you can also write these liabilities on liability side but we are making in a vertical format so we have written it under the assets and reduced it from current assets so total assets is 193 it matches with total liabilities 193 050 getting it this was a simple balance sheet later on we are also going to make balance sheet for our companies but just to make you understand the fundamentals we are making this simple balance sheet so we will stop here namaste danyag