 Namaste to all of you. This is our second session on financial accounting. I am sure you would have enjoyed the first session. In the first session, it was just an introductory session. So, we had just started with understanding what is accounting, then what is the distinction between various streams of accounting like financial cost, management accounting. After that, we have moved to financial statements. So, we have seen how are financial statements emerging. So, basically, they emerge from money cycle. So, you can have a view at the slide where we have just seen what is a money cycle. I am trying to go from very much of a layman who does not know accounting. Some of you might be well versed with accounting terms. So, please bear with me, we will go in details in the coming sessions. But to begin with, this is what is a money cycle. It starts with money, procurement and so on goes back to money. So, at the stage of procurement and consumption, the costs are incurred, then delivery collection is a time you get the revenue. Now, from this money cycle, the basic financial statements emerge. So, on one hand, we have got a PNL account. It records your revenues, it records your costs and it compares the revenues and the costs, the net result is given to you in the form of profit or loss. On the other side, we have got balance sheet. Now, what does the balance sheet do? It lists out the resources for the business. Those resources for the business are known as the assets. It also lists out the providers for resources which are known as the liabilities. In the last session, we had also seen what are the important assets. So, you can again look at those slides. I think you know it all now, the first one is fixed assets, which is nothing but an infrastructure needed for the business. Can you think of any example? So, it can be land, building, it can be vehicle, it can be software, it can be patents, these are all your fixed assets. What are the current assets? All those assets which are getting converted or which are moving in money cycle. So, it includes your stocks, it includes your receivables, it includes your cash balances, it includes any monies which you have to receive from, let us say from electricity authority as a deposit. All these are included in current assets. Human assets are important, but not part of balance sheet. Then on liability side, we have got three important items, we have got capital. This is the money which owners have put in, then we have got borrowings. This is the money which lenders have put in as various types of loans. And then we have got current liabilities. Current liabilities again are coming from money cycle. For example, the payables to suppliers, so if we purchase some goods, do not pay that money immediately, then that much balance will be your payable. Or if we use, let us say electricity, but have not paid the electricity bill. Then the outstanding electricity bill will become your current liability. So, this was a brief of what we did last time. If you look at the bottom part of the slide, it is sort of trying to tell the purpose of these two statements. So, balance sheet is one which shows you the financial position of the organization. At P&L account, it tells you about the profitability of the organization. Now, moving ahead, again it tells you what does the balance sheet gives. So, it shows the cumulative position of resources, that is your assets and the sources of the funds, that is your liabilities at the end of the year. Of course, it can be at the end of the month or a quarter also, but keep in mind it is a cumulative position. So, if you purchase some land 10 years before, it will continue to appear in balance sheet today unless you have sold it. So, all your assets continue, your liabilities will also continue. So, if you have obtained a loan 4 years back, it will appear in the balance sheet at that time. It will even appear in the balance sheet today as long as you have not yet repaired it. So, you cannot say, okay, this loan was 4 years ago, let us forget it now, that is not possible. Loan tabbita, if there is an outstanding balance, it will be shown in the balance sheet of today also. That is why it has been called as a cumulative position as on a particular date. The profit and loss statement essentially gives you revenues and cost performance, but for a particular quarter or a year. So, if you have made any sales in this month and if you make profit and loss for this month, it will come as a profit and loss of this month, but it cannot be shown in the next year. It can only be shown in the current year. So, it is not a cumulative performance, it is a performance for that period that is shown in the PNL account. Now, very important statement is as we have seen in the beginning, your resources and sources match. So, your balance sheet exactly matches, but after doing business for some time, your business cycle is continuously going on, will the balance sheet still match? Is it possible? Suppose, you are doing well in the business, your assets will slowly go on increasing, your liabilities will not increase, in fact liabilities can go on decreasing, then will the balance sheet still tally or match? Now, I am just going back to the slide so that you can have a view of the balance sheet. So, you can just look at the asset side. Normally, what will happen is if your business is doing well, your stocks will go up, then your receivables will go up, your cash will go up, while on liability side, you might be repaying your loan, so loan balances will go down. If you pay your suppliers or employees on time, your current liabilities will also go down. So, your liabilities are falling, assets are rising, then will the balance sheet still tally? Is it possible that the total of assets and liabilities will match? What do you think? Just have a thought on this, is any item missed out in the given assets or liabilities which should be there? Actually very important item is known as reserves, which was not shown earlier, but I am just showing it now to highlight it or bring your attention to it. So, what will happen is after say one year, you have made some profit in profit and loss account, that profit either is taken away by the owners, it is their profit, they can take it away, but mostly owners do not take away the whole of profit, they may take some money, remaining money is accumulated in the business in the form of reserves. So, that reserve goes on increasing, see we have already seen that assets are rising, your external liabilities are not rising, in fact they are falling, so there is a difference, that difference will be given in the form of reserves. So, what happens is for a healthy business, profit goes on building up and that accumulates in the balance sheet in the form of reserve. Now, suppose you have no time to study the balance sheet, the whole balance sheet of a company, just have a look at balance sheet and look at the reserves position. If the reserves money is high, it immediately tells you that company is able to generate profit on a consistent basis, because one year profit, but it is only for that year, but that whole profit is getting added up in reserves, if the total profit for so many years minus what profit they have taken away is what is shown in the reserves and if that amount is very high, it will mean that company is having a good financial position for a pretty long time. You would have heard of blue chip companies, most of the top rated companies have a high level of reserves. Now what happens is if you have good amount of reserves, then company can easily expand, they do not have to go to bank to borrow new money, they can spend that money on anything which they want and the company will grow in a very healthy manner. Now, once again I have summarized the financial positions, so balance sheet, it may be prepared at any time, not necessarily at the end of the year, but it gives you position as on that day and profit and loss account is normally prepared and presented at the end of a particular period. This is once again summarizing the items in the balance sheet for you, so we have got liabilities. Now the first item, I have put it as owner's fund. Now what do you understand by owner's fund? If we just go back, we had earlier put capital and we had the second item was reserve. So these two items taken together capital plus reserves are known as owner's fund. Now how do you define capital? If we remember we have seen that money which owner's put in is a capital, here business is generating profits and giving it to owners in the form of reserves. So capital plus reserves together is the first item in the liability side of the balance sheet that is known as owner's fund. The second item is non-current liabilities. In the earlier balance sheet we have called it borrowings as an example, but any liability which is of long term in nature is called as a non-current liability, mainly it will include borrowings or loans. It can also include any other item which you have not paid in one year's time. The third item is current liability. So current liability we had seen that from the money cycle certain liabilities arise. As far as the definition is concerned if that liability is intended to be paid in one year's time then it is called as a current liability. So we have seen 2-3 examples, can you think of any other example? For example if your employee is with you, you should pay salary at the end of the month but if you do not pay that salary then the amount of salary which is still unpaid it will be called as a current liability. If suppose there are some other expenses let us say office expenses you have not yet paid them. Then that is also a current liability. So all those liabilities which are due and which are payable within one year's time they are in current liabilities. All those liabilities which are not intended to be paid in one year are non-current liabilities. So both these non-current plus current these are external liabilities and the top item or the first item was owner's funds. This is also called as an internal liability. Now go to asset side, we have already discussed what is a fixed asset. So this is a infrastructure or these are the assets which are long term with the business to be used for the business then we have added one more item here that is known as non-current investments and the last item the bottom most item is a current asset which I think we have already discussed. So what we mean by current assets is these are those items which are to be liquidated or which are to be received within one year's time or and they are normally coming from the money cycle. So all those items which are likely to last for more than one year are called as non-current. So assets broadly are non-current current, current is the last item. Within non-current we have got fixed assets then next is non-current investment. Now what is this non-current investment? First of all what is meant by investment? If you see I will just take you back in the earlier balance sheet we had not mentioned of any investment we had just seen fixed assets and current assets because that was a balance sheet which emerges from money cycle but in case you have invested some money outside your business then that money is called as an investment. So here any money which you have put outside your business and which is to last for more than one year then it is called as a non-current investment. So can you think of any examples that which item will come in non-current investment? As we have put some money in the bank as a fixed deposit for more than one year not in your bank account because bank account is a current asset but if you keep the money in fixed deposit with a bank for two years then that will be an example of non-current investment. Similarly if you invest in shares of some other company then that is non-current investment. Are you getting me? So you can have some examples of those money put outside your business that is a non-current investment apart from this if you have any non-current assets then they are categorized as other non-current assets. So are you getting? So these are the important items in balance sheet under liabilities and assets. Now we will come to the next item we are going to discuss balance sheet and P&L in the next sessions but right now it is very important for you to know where from you get all this information. The best source of information for you is a annual report because every company comes out with an annual report and that annual report has financial statements. We have discussed financial statements like a balance sheet P&L, cash flow they will all be available in the annual reports along with notes to accounts and some more disclosures. Then there are some other things in annual report also there will be chairmans statements there will be board of directors analysis there will be auditors report there will be report on corporate governance there will be consolidated financial statements then there is a management discussion and analysis. There is also a list of employees receiving remuneration more than 60 lakhs maybe some of you are aspiring for that they are earning more than 60 lakhs per year. So there is a list given out there that who are these people what is their qualifications and experience and so on. So this annual report is a authenticated document and a very useful document for any learner you will get financial statements here I am telling you this right away because I am expecting each one of you to download the annual report of the company this is freely available. So please choose your company download your annual report read it go through it because in our course in coming lectures we are going to discuss about balance sheet P&L, cash flow some more requirements of preparation of financial statements all these should not be theoretical go through your annual report look at the balance sheet and P&L of your own company your own means you do not may not be owning it. But consider it as your company and start studying it from now that is why in this session I have told you what is annual report in detail we are going to look at various financial statements in the coming sessions. I hope you have liked the second session also this was bit shorter one but the third session onward now we will go into technical details about each of the financial statements thank you so much and namaste.