The concept of a balance sheet Ex

erci

se 1

What I HAVE What I OWE

Exer

cise

1

What I HAVE What I OWE

House

Car

Furniture

Equipment

Savings

“Petty” Cash

Mortgage

Car loan

Equipment loan

Invoices

Overdraft

The concept of a balance sheet

Exer

cise

1

What I HAVE What I OWE

House 100

Car 10

Furniture 30

Equipment 20

Savings 10

Petty Cash 5

Adding up 175

Mortgage 65

Car loan 5

Equipment loan 10

Invoices 5

Overdraft 10

Adding up 95

The concept of a balance sheet

Exer

cise

1

What I HAVE What I OWE

House 100

Car 10

Furniture 30

Equipment 20

Savings 10

Petty Cash 5

Total 175

Net worth 80

Mortgage 65

Car loan 5

Equipment loan 10

Invoices 5

Overdraft 10

Total 175

The concept of a balance sheet

Exer

cise

1The concept of a balance sheet

Assets =Liabilities +Net Worth (Equity)

What about income and expenses?

Revenues (Income) 1000- Mortgage loan repayment 300

- Car expenses 50

- Heating, electricity,… 100

- Various expenses 100

- Taxes and Soc. Sec. 400

Rev

enue

s and

exp

ense

s

Net income / Savings 50

Where did the money go?

The charges to the P & L

Net Result

The

P&L

Acc

ount

Other operatio

nal income

Gross

marginAdded Value

Gross ops

profit

Profit before taxes

Goods& services

Personnel -expense

Other ops expenses

Amortisation

EBIT

Financial expenses

Taxes

Result of Operations

Financial Income &

exceptional

Gross Profit

Other income

P & L N-1 EURO N

Turnover (1)Purchased goods- Inventory= Cost of goods sold (2)Gross margin (3)=(1)-(2)

+ Other business related income= Income from operations (4)

- Goods and services (5)= Added Value (6)=(4)-(5)

- Personnel expense- Other operational expenses= Gross operating income

+ Financial revenues+ Exceptional results= Gross total revenue (EBITDA)

- Amort., provisions, depreciations= EBIT

- Financial expenses- Taxes

= NET PROFIT

ExceptionalExceptional

OperationsOperations

InvestmentsInvestments

FinancingFinancing

Key elements of a P & L Th

e P&

L A

ccou

nt

ASSETS LIABILITIES

BALANCE SHEET

INCOME statement

CHARGES REVENUES

The balance sheet of a bankASSETS LIABILITIES

Diff

eren

t bal

ance

shee

ts

What the bank HAS What the bank OWES

Example :The opening balance sheet of a company

Assets Liabilities

Short term asset Net worth

The methodology of double entry accounting D

oubl

e en

try

Double entry

Liability

Increases= DEBIT

Asset

Dou

ble

entry

Double entry

Assets LIABILITY

IncreasesCREDIT D

oubl

e en

try

Double entry accounting

Cash NetWorth

ASSETS LIABILITIES

Dou

ble

entry

Double entry accounting

Income statement (P&L account)

Dou

ble

entry

The double entry accountingTO

REM

EMB

ER

Asset accounts

DIncrease Decrease

Liability accounts

Decrease Increase

Charges Revenus

P & L Account

Bar

ca

P & L account (Income statement) Revenue 240,000Cost of materials -80,000Salaries -48,000Other operating cost -22,000EBITDA 90,000Depreciation -6,250Op. income EBIT 83,750Tax -27,638Net income before div. 56,113

Bar

ca

Cash flowPayments from clients 156,000Cost of goods sold -77,000Salaries -48,000Other op. expenses -22,000Cash flow from ops 9,000Cash flow for investments -25,000Available cash flow disponible

-16,000Capital increase 50,000Dividends -2,000Cash flow from financing 48,000Cash flow 32,000

Bar

ca

BalanceFixed assets 18,750

Inventory 15,000

Receivables 84,000

Cash 32,000

Total assets 140,750

Capital 50,000Ret. Earn. 50,113

Net worth 100,113

Tax due 27,638

Payables 18,000

Div. due 4,000

Liabilities 49,638N.W. & Liabilities towards third parties

149,750

Wha

t hap

pene

d?What happened?

EURO

Date 01/01/N-131/12/N-1

01/01/N31/12/N

ASSETSFixedInventoryReceivableCash

3991.516

890975

10,6 %40,1 %23,5 %25,8 %

3971.3641.136

561

13,4 %46,1 %38,4 % 2,1 %

TOTAL ASSETS 3.780 100 % 3,458 100 %

LIABILITIESNet WorthLT DebtSuppliersBank debt

592660

2.5280

15,7 %17,5 %66,9 % 0 %

673441

2,166178

22,8 %14,9 %56,3 % 6,0 %

TOTAL LIABILITIES 3.780 100 % 3,458 100 %