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‫Let us try to prepare financial statements in a logical way minus the rules and standards that is I'm
‫not going to follow any specific rules or standards they don't.
‫But we'll try to understand in a logical way.
‫So we listed some transactions and we'll identified the nature whether it is an income or it's an X
‫pones or is it an asset or a liability.
‫Well a good starter.
‫First I'll give beheadings one as income to expose 3 and 4 liablity.
‫So some transactions will be listed here.
‫We have to identify whether in order in which category it fits the first one is sales.
‫So Sears is an income expands asset or liability in sales the money flows in.
‫It's against a consideration and it need not be repaid.
‫So it is not a liability and you understand it's the nature of income so sales an income.
‫The next one is safe payment of salary and payment of salaries for the past.
‫It's for the employees who are Vogues So it's not going to create future benefits so there is a cash
‫flow.
‫So here the test is whether it is an expense or an asset payment of salaries for the past.
‫So it's an expense and it's not an asset.
‫Let's say there's other one bank loan and bank loan money comes in.
‫Now the question is whether it is an income or a liability to the bank loan comes with an obligation
‫you have to repeat those things which you need not replace called as income that things which you have
‫to repay as liabilities.
‫So bank loan is a liability.
‫The next trade them the land building the land and building you are acquiring are creating as a fixed
‫us with an intention to hold on with an intention to use for your business and you don't have any intention
‫to sell it.
‫Then the question is whether it is an expense or asset to this land and building is capable of creating
‫future benefit.
‫One it can be capital appreciation when you sell a little time to.
‫It will help you in housing the missionaries are factory hand will help in earning income.
‫So it's giving future benefits or discolors an asset next to raw material the raw material whether it
‫is an expert or an asset.
‫If the Larmer drill has been consumed it is an expensive that is not consumed.
‫It as an asset.
‫Now let me give you what is consumed.
‫Then there's an experts then we'll have interest received interest has been received on some investments
‫made.
‫So is it an income or liability.
‫That's when the question into received or something you have used it as an income then let's see if
‫we have power charges paba charges.
‫Is it an expert or an asset.
‫It's basically an expense because you have consumer power and you are paying for it and it's not creating
‫future benefits so it is an expense.
‫So this is a simple and logical way to understand the various financial transactions and which items
‫will find please in which category.
‫So any financial transactions will fit than you have before and it would figure in either end statement
‫of penal or in balance sheet.