Category: Commerce Notes PPT

Introduction to Government Budget

Government budget is an annual financial statement of estimated receipts and expenditure of the government during a fiscal year, as recorded in Article 112 of the Indian Constitution.  

In the beginning of every year, the Government of India prepares a document and presents it before Lok Sabha. It contains anticipated revenues and proposed spending for the upcoming financial year (which starts from 1st April and extends till 31st March of following year). Government budget primarily addresses monetary needs and problems of a country and how to resolve it.  

Budget is a crucial activity as it shapes economic development and progress of a nation. 

Do you know who presented the first Union Budget of independent India?

Elements of Government Budget

A few significant aspects of the Union Budget are

• It estimates capital receipts and revenues.

• Ways and means to raise revenues.

• Approximates total expenditure.

• Explains actual receipts and expenditure of the closing year and reasons for deficit or surplus in that year.

• Announces financial and economic policies for the upcoming year. These include spending programs, taxation upgradation, and proposals of new projects or government schemes.  

Task for you: Can a strong budget help reduce income inequality? If so, how?

Objectives of Government Budget

1. Economic growth- The overall economic growth of a nation relies on savings and investments. Budgetary policies are hence introduced to infuse enough recourse in different public sectors. Government makes provision to boost the rate of savings and investments made within the economy. 

2. Reallocation of resources- Through a budget, the government endeavours to equally allocate resources and wealth. They encourage small industries like “Khadi” to flourish by allowing subsidised loans and reduced taxes on raw material, needed for production. Government can also levy hefty taxes upon production of harmful products like cigarettes and alcohol to discourage the production of those.   

3. Redistribution of income- To close the income gap between rich and poor, several budgetary schemes are launched from the government’s end. Fiscal instruments like subsidies, taxations, etc. are effectively used to achieve this goal. 

4. Financial stability- Budget keenly focuses on lowering the price fluctuations in the market. Policies like Deficit budget during deflation and Surplus budget during inflation thrive on bringing stability within the economy. 

5. Bringing down economic inequality- The Government tries to bring economic equality of society. They do so by imposing taxes on the affluent classes of society and spending them for welfare of the economically weaker section of the community. 

Do you know – Higher tax rates on a certain group of nationals and organisations can have a severe impact on the overall economy. 

6. Financing Public Enterprises- Several public sector industries are established for the social welfare of the public. An annual budget provides financial aid to such businesses to grow. This objective organically strengthens the economic structure of a nation. 

7. Addressing Regional Disparity- One of the chief aims of the Government budget is to alleviate social disproportion. They achieve so by installing manufacturing facilities in the economically weaker section of the society. Also by producing goods and supply directly. 

Task for you – Identify the characteristics of a robust as well as weak budget using the above mentioned objectives

Types of Budget

Primarily the budget is divided into 3 types.

• Balanced Budget- Government’s budget is assumed to be balanced where anticipated expenditure is equal to the expected recipients in a financial year. It brings economic stability in a country by cutting down wasteful expenses. This can be expressed symbolically like, Balanced Budget = (Assumed collected revenues = Assumed expenditure)

• Surplus Budget- A surplus budget occurs when the estimated revenues exceed the expected expenditure. In this case, imposed taxes surpass the expenses. It means that the Government is taking more money under its control which leads to fall in prices.  

• Deficit Budget- A budget is in deficit if the expenditure of the government is higher than that revenue generated in a fiscal year. Symbolically, Deficit budget = estimated expenditure > estimated revenues.  

Significant Components of Union Budget

The two main components of government budget are

1. Revenue budget- It comprises revenue receipts and revenue expenditure of a government. These receipts are again classified into two segments: tax revenue (income, excise, corporate, custom taxes) and non-tax revenue (income and profits earned by government other than taxes).

2. Capital budget- Just like the former one, Capital revenue is classified into capital receipts and expenditure. Capital recipients are government liabilities (borrowings, disinvestments like shares of public enterprises). However, capital expenditure is long-term investments that the government makes by creating assets like building roads, hospitals etc.

Importance of Budget

It is essential for any government to plan a budget as it allocates various resources across the nation to ensure economic progress and stability. Apart from that, a few other important points of the government budget are listed below.

• It helps to uplift underprivileged sections of society by introducing new policies.

• Budget focuses on the advancement of defence capabilities.

• Allocates money for improving educational facilities.

• Successfully handles the economic infatuation of the country by balancing inflation and deflation.

• Aids in achieving financial and economic goals of a country.  

Impact of Budget

Since a budget is introduced to diminish any financial discrepancy within a country, its effects on society are far-reaching. 

• It brings discipline to fiscal planning through controlled expenditure, allocating several revenues. Based on budget, the government makes precautionary measures. 

• Government budget and its components assist in the redistribution of revenues based on social priorities.

• The budget includes effective plans and programs for conveyance of goods and services to achieve its target. 

Government Budget thus plays a crucial role in determining the rapid growth of a nation. If you want to learn more, check out our website today for more information about economics, finance and business study related topics. 

When the demand for a new issue of the stock exceeds the number of shares available, the term “oversubscribed” is used. When a new issue is oversubscribed, underwriters or other financial institutions selling the asset might raise the price or provide more securities to account for the higher-than-expected demand.

In contrast to an oversubscribed offer, where demand exceeds the available supply of shares, an undersubscribed issue occurs when demand exceeds the available supply of shares.

When a company decides to go public or issue new shares, it does so via IPO (Initial Public Hearing). That company asks for applications from buyers, and based on that; it allots shares.

However, in realistic scenarios, it is improbable that a firm receives the same number of applications equal to the shares issued. It is either oversubscribed or undersubscribed.

What is Oversubscription of Share?

Oversubscription of shares is a situation that occurs when a company receives more applications to purchase their shares compared to the number of shares that they have issued. It is a situation in which buyers show so much interest in a new stock that demand exceeds supply. 

Before issuing new shares, underwriters study the market to understand the number of potential investors, people who may or may not purchase these new shares. Based on such calculations, firms issue a fixed number of shares.

When investors order more than what has been issued, it creates an oversubscription. This situation of oversubscription of shares may affect the prices of an individual share. 

Thus, the issuing house or firm is responsible for dealing with this situation. They take the necessary measures to manage this scenario.

How to Deal With Oversubscription?

According to the guidelines of SEBI (Securities and Exchange Board of India), companies cannot reject applications outright. However, they can do so if there are any mistakes with the applications like –

• Incomplete information

• Absence of required documents

• Discrepancies with signature

• Submission of incorrect application amount.

• Last but not least, improperly filled application form

What are the Ways?

In a scenario of oversubscription, a company can’t fulfill the market demand. Therefore, opt for the following measure to counter this situation.

1. Pro-Rata Allotment

Pro-rata allotment means no applicant is rejected. However, they will not receive the desired amount of shares. Everyone receives shares according to the ratio of the total number of applicants/ total number of shares issued. 

For instance, ABC Ltd. is planning to offer 40,000 shares to the public via IPO. However, it receives 80,000 share applications. Therefore, the company opt for this method, where it has allotted the total shares to every applicant.

Thus, the ratio here will be 80,000:40,000, i.e. 2:1. Hence, every applicant for their application of two shares will now receive one share. Pro-rata allotment makes sure that every applicant receives at least some shares against their application.

2. Rejecting Applications

The easiest way to deal with over-subscription shares is to reject some applications. According to the SEBI guidelines, companies can do so if they find any incomplete applications. In such cases, the application money is refunded. For example, if a company receives 10,000 applications against their 6,000 share, it can reject the remaining 4,000 in case there are any discrepancies.

3. A Combination of Both

However, among the excess applications, not everyone makes a mistake and cannot be rejected on that ground. In such a scenario, a company opts for a middle ground. Here, firms accept the first set of applications in full. Amongst the remaining ones, shares are allotted on a pro-rata basis. 

For example, XYZ Ltd. is planning to release 20,000 shares in the market. However, they receive 30,000 applications against it. Therefore, in this scenario, this company can accept the first 20,000 applications in full and among the remaining 10,000 distribute shares to 6,000 as per a pro-rata basis. 

A Real-Life Example of Oversubscription of Shares

In 2012, market analysts indicated that Facebook is finally issuing its long-awaited IPO. The company was looking to raise around USB10.6 billion via 337 million shares. Prices of stocks were in the range of USB28 to USB35. Once this news broke, it created an enormous buzz in the market and resulted in an oversubscribed IPO. 

As a result, the company took advantage of this situation. It increases the number of shares from 337 million to 421 million. Additionally, it increases the share price to USB34 to USB38 per share. Thus, Facebook and its underwriters made the most of this situation generated more capital and increased its market valuation. 

Benefits of Oversubscription

Companies aim to make the most of it in a situation of oversubscription. They can manage this scenario via different techniques like increasing the number of allotted shares, rejecting applications, trying combinations of both, etc. They aim to meet market demand and raise as much capital as they can. 

How can a Company Issue More Shares?

Every company holds back a substantial amount of shares for a future capital generation or to distribute as management incentives. Therefore, firms can add further shares in case an IPO is oversubscribed. 

Share Price Management in an Oversubscribed IPO

In case the underwriters of the company can predict that there is enough buzz in the market about their IPO, they intentionally set the share prices low to sell all the shares. They do not want to be left with the remaining shares. Therefore, if there is any situation of oversubscription in the future, it leaves them with the scope of hiking up the share price.

However, universal trends show that oversubscribed shares are mostly under-priced to some extent. It allows a post-IPO hike in prices and robust trading of respective shares. 

Are there any Disadvantages of Oversubscription?

Well, a complaint against this situation is that investors often get snubbed. When firms cannot issue any more shares, they reject applications. On the other hand, investors often receive a lower amount of shares compared to what they have applied for.

 

Oversubscription of shares is a vital topic to cover for every commerce student. Apart from this, if they want to learn more about other topics of commerce, they can visit the official website of .

Key Takeaways of Oversubscription of Shares

• An oversubscribed stock offering is one in which the demand for the stock outnumbers the supply.

• An oversubscribed initial public offering (IPO) indicates that an investor may want to buy a company’s stock, resulting in a higher price and/or more stock being available for sale.

• The demand must eventually reconcile with the security’s underlying corporate fundamentals, therefore an overcrowded offering does not automatically indicate the market will support the higher price for long.

The Phillips Curve is an economic concept, and it has been proposed and initiated by A. W. Phillips to state the reasons for inflation and consequent unemployment. It will lead to the inverse and the stable relationship, and the theory claims the kind of insufficient economic growth, which can, in turn, lead to a more developed job structure leading to less unemployment. However, the authentic concept, as proposed by Phillips Curve, has been empirically disapproved due to the happening of stagflation in the years of 1970s. Here you can notice the high levels of both unemployment and inflation, and you are quite into the field, making ways for the experts. 

There are expectations augmented by Phillips Curve, and the concept is more innovative and encouraging of its kind. The curve is there to state the rate and reasons for unemployment and inflation and also talks about the inverse relationship of the same. The high rate of inflation has a connection with the lower rate of unemployment, and it can even be vice versa. Once you get to know what is Phillips Curve is, you can have a better understanding of the rate of inflation. 

What is Phillips Curve?

In trying to understand the concept of the Phillips Curve, you get to know about the change in the rate of unemployment within the specific economic setting. There are the expectations augmented Phillips Curve, and it is something that can have a conventional effect in matters of price inflation. It is all about the inverse relationship between inflation and unemployment, and the same is depicted in the kind of downward economic slopping. One can see the concave curve with the rate of inflation shown by the Y-Axis, and you even have the unemployment being depicted by the X-Axis. 

In the year 1960, there has been a fiscal stimulus that can help in increasing the aggregate demand and also helps in initiating the favourable effects. In the process, an increase in the amount of labour demand will help augment the pool of unemployment, and there is a subsequent decrease in the workers with the subsequent increase in the company wages. It is perfect to follow the Phillips Curve equation to attract the portion of the talent pool. The corporate cost of the wages can increase in time, and the companies will pass over those costs to most of the customers in the form of prices. 

A simple Phillips Curve equation can be represented as –

U = -h (unemployment – u)

[Pi = -h times (u -u_{n})]

A simple Phillips curve is typically represented with inflation as a function of employment rate and the hypothetical unemployment rate that would exist if inflation existed as zero. The inflation rate is represented by and the employment rate is denoted by ‘u’. The ‘h’ in the Phillips curve is a positive constant that guarantees that the curve slopes downwards. The ‘[u_{n}]’ is the natural rate of unemployment that would result if inflation was zero.

The Concept of NARU

There is an increase in the central bank inflation, and it can help in pushing the level of unemployment to the lower level, as depicted in the Phillips curve equation. There can even be an initial shift along the curve, causing an increase in the expectations of the workers. This will help the inflation get adapted to the new environment, and in the longer run, the curve can have an outward shifting, as you get to see in the Phillips curve PPT. However, things have a relation with NARU or the natural rate of unemployment. This can help in representing the normal rate of institutional and frictional unemployment as part of the steady economy. 

The concept will become better clear once you start following the Phillips curve diagram. Especially in the stage of stagflation, the workers and most of the consumers can start to have a rational expectation, and once again, this helps increase the rate of inflation, and with this kind of financial awareness, the money based authority will have plans to embark on expanding monetary policy. Based on the details of the Phillips curve PDF, you can have a better idea about the apt monetary policy with all the necessary fiscal inclusions. 

The Phillips curve in economics plays a major role in the probable monetary expansion. Several surveys have proved that the presentation of the Phillips Curve has made things clear in the field of finance. Once you check with the PDF and the diagram, you can see the vertical graph that will show you the rise in the graph and make you better aware of the possible economic growth and development. It is the genre where you can put your trading skills and get into depth with the Phillips curve example. This is sure to have the least effect on the reduced rate of unemployment, and this will make the curve acquire the vertical line. 

The entire concept of the Phillips curve is an indispensable part of Economics. It is imperative to have at least rudimentary knowledge of the subject to be aware of the several real-life economic phenomena that we experience and observe. Thus, this well-written article has comprehensively explained all the vital concepts related to the Phillips curve in economics.

In the process of accounting, an accountant is required to classify each expense and income and put it into a specific method and entry. This is done so that there is a definite procedure in the accounting system of the organization and the benefits of recording these entries are enjoyed. The benefits of a good accounting system include the correct estimation of provisions, calculation of net profit, and also giving a good glimpse of presentation.

In this context, we are going to discuss Prepaid Expenses, Accrued Income, and Income Received in Advance from an organization’s point of view.

Overview of the Income and Expenses

Expenses that are to be charged in the future or simply the future expenses that are paid in advance are known as prepaid expenses. In this, the benefit of the expenses being paid in advance is recognized. They are initially treated like assets their value is expensed over time onto the income statement.

Now, what is accrued income and income received in advance? Accrued Income is the income that is earned but not yet received. ‘Income received in advance, as the name suggests, is the earned revenue which is to be earned in the future in an accounting period but is already received in the current accounting period.

Prepaid Expense

A company prepaying for an expense is to be recorded as a prepaid asset on the balance sheet and is termed as ‘prepaid expense’. The entry is being simultaneously added with another entry (the payment account) that reduces the cash balance of a business unit. Prepaid expense, being an ‘expense’ is still recorded in the asset side of the balance sheet as this is an advanced payment for the goods and services to be received in the future.

According to the Generally Accepted Accounting Principles (GAAP), expenses should be recorded in the same accounting period as the benefit generated from the related asset. For example, a company uses leased machinery for twelve months, the company benefits from it over a full-time period. Recording an advanced payment made for the lease as an expense in the first month would not adequately match expenses with revenues generated from its use. Therefore, it should be recorded as a prepaid expense and allocated out to expense over the full twelve months. Are prepaid expenses debit or credit? Prepaid expenses represent prepayment of an expense and hence it is debited and the cash account is credited. This records the prepayment as an asset on the company’s balance sheet, such as prepaid insurance and debits an expense account on the income statement, such as insurance expense.

Accrued Income

Accrued Income is the income that has been earned but not yet received. Accrued Income is to be recognized in the accounting period in which it arises but not in the subsequent period when it is received. For the journal entry, the income is to be credited to record the accrued income and a related receivable is to be debited to balance the transaction. The accounting entry will be as follows:

Accrued Income is an accounting concept that is a situation where a profit took place but was not yet received in the hands of the receiver. This event is recorded as receivable on the books. The concept of accrued income is used under the accrual basis of accounting. Here, the income can be earned even when the cash has yet not been received.

Income received in Advance 

In some cases, the yet to be earned revenue belonging to a future accounting period is received in the current accounting period, then such income is considered as the ‘income received in advance’. This income is also called the Unearned Revenue, Unearned Income, Income Received but not Earned these names are because it is received before the related benefits that are being provided.

This revenue is not related to the current year’s accounting period, for example, the Rent which is received in advance, the Commission that is received in advance, all re income received in advance etc. This income is a personal account income and is shown on the liability side of a Balance Sheet.

Effect of These Expenses and Income on  Financial Statement

Firstly, to record prepaid expenses, the current asset is reduced and the amount of reduction is reported as an expense on the statement. These are the costs that have been paid but are not yet expired and hence as the amount expires, the current asset is reduced and this is recorded as an expense in the income statement (a type of financial statement).

Next comes the accrued income. In the financial statement, the right to receive such income is displayed in the balance sheet (another type of financial statement) in the current asset section. This will be termed as accrued receivables or accrued income. The accountant debits an asset account for accrued revenue which is reversed when the exact amount of revenue is collected crediting accrued revenue. In the income statement, accrued income is recognized as revenue. Another associated accrued revenue account on the company’s balance sheet is debited by the same amount, usually under accounts receivable.

Revenue received in advance or Income received in advance is received before providing any benefits. This unearned income is shown on the liability side of the balance sheet.

Profit and Loss Statement

When a company prepays for an expense, it is recognized as a prepaid asset on the balance sheet and it reduces the company’s cash (or payment account) by the same amount. The prepaid expense is deducted from the particular expense while preparing a profit and loss statement.

In the case of accrued income, it is to be added with the related income in the profit and loss account and a new account of the accrued income will be shown on the asset side of the balance sheet.

The unearned income which is received before the benefits are provided is to be shown on the liability side of the balance sheet. While preparing the trading account, we need to deduct the amount of income received in advance from that particular income.

Outstanding Expense

Outstanding expense is the exact opposite of prepaid expenses, outstanding expense means an expense that is due i.e not yet paid. A company or a business unit takes the benefit but the related payment is not paid so far and this event leads to the occurrence of an outstanding expense to incur. The expense is due. Examples of such an event of expense outstanding are as follows

1. Rent past due but not yet received

2. Bills passed due but not yet received 

3. Subscriptions passed due but not yet received

Outstanding expenses are to be recorded in the balance sheet on the liability side. This accounting takes place under the accrual basis of accounting. For example, wages earned by the employees are not recorded in the accounting records. This is to be entered through an accrual adjusting entry – debit wages expense, credit wages payable or credit accrued wages payable. 

Journal Entry for Outstanding Expense

Outstanding expenses are recorded in the books of finance at the end of an accounting period to show the true numbers of a business.

The subject matter discussed on prepaid expenses, accrued income and income received in advance is one of the core studies for accounts. A good grasp on the matter is beneficial as the expenses and the incomes together form a business transaction and a financial event to take place accordingly.

Presently, ‘Namaste’ is a form of Indian custom that has gained fame worldwide under COVID-19. Like every citizen, not just the Indian Prime Minister joins hands to greet, but many other nations’ prime ministers follow the same greeting style. Custom is the habit, pattern, and behaviour universally accepted and followed in any social system. Therefore, most of the laws defined are based on traditions followed for ages. Everyone abides by the law; hence it maintains the balance and brings peace and harmony.

In the current scenarios, law or rules formed in any institution like court are derived from different sources. Hence sources of law are classified into two categories.

• Principal Sources of Law

• Secondary Sources of Law

In this article, we will get into details of sources of law.

Principal Sources of Law- Customs

As per the ancient literature, it is found primitive people ran life wholly based on customs. It was when everything was underdeveloped; lack of resources led to life in specific style by everyone again and again. Thus, a particular activity became a custom. Customs have played a significant role in the development of Hindu Law. Legal entities like the Court and Parliament consider the importance of custom as a source of law in India.

Custom as a source of law is further categorized – 

Without Sanctions- these are the customs that are not compulsory, however, bound to follow due to social obligations. Custom without sanction example, the nearness of the general public beliefs 

With Sanctions- These are the customs imposed by the governing body. Thus, these are the obligatory customs. Sanctioned customs could be either Legal Customs or Conventional Customs.

• Legal Customs- There are legal customs with sanctions that act like a strict rule to be followed by everyone. If anybody does not abide by the legal customs, they will be liable to be punished. Custom in jurisprudence is recognized by the various legal entities like the court. There are legal sanctioned customs that apply to a particular specific geography. Henceforth, a custom that becomes part of place culture, is called Local customs. We have communities who continuously move from one place to another carrier such local customs along with them.  There are general customs which are not specific to a particular local geography. Every citizen of the country follows customs applicable to the whole nation and is called General Customs.

• Conventional Customs – Any agreement in which two involved parties mutually promise and are aware of its notion becomes a conventional custom. The reasonable conventional custom cannot modify any other general rule of the area. Based on the geography, conventional custom are also narrowed down into general and local conventional customs

You must be thinking, at what point a custom becomes a law. Let’s answer your query; there are particular prerequisites for a custom to become valid and further convert into law. Let’s see the prerequisites

Essentials of Valid Custom

There are few requisites laid down for the recognition of valid custom. All the customs are not approved in judicial understanding.

• Antiquity- a custom that is ancient or immemorial could be considered as a valid custom.

• Certainty- A clear definition of custom is compulsory so that the idea behind is not vague

• Reasonable- A custom must be rational to support fundamental justice, equality, and good conscience. 

• Mandatory Adherence- A custom is considered valid if all the people follow it without observing any interruptions since ancient times.

• Conformity with Law and public morality- A custom should not be against any law of the country. Law can make any of its customs prohibited, which means it will no longer be a valid custom.

• Unanimous view- A valid custom is universally accepted. Each person of the nation should receive the custom, then only it will be considered accurate.

• Peace and harmony- Everyone should enjoy following a valid custom. It should always bring peace. Then the only custom is considered valid.

• Consistency- There should be consistency and uniformity between the customs. Any two customs that contradict viewpoints should not be considered valid customs.

Fun Facts 

• Do you know requisites for binding any valid custom was laid down by Alle, Blackstone, Carter, Littleton?

• Do you know customs without sanctions backed by public pressure are also termed as positive morality?

An organisation prepares several financial statements and documents which can be analysed to comprehend the financial status of a company. Profit and loss account and balance sheet are the same kinds of documents any organisation prepares to understand profit or loss earned by the company in a financial year. 

Let us look at what these two terms mean and how these are different from one another. 

What is a Balance Sheet?

A balance sheet can be alternatively known as a position statement. It can give the financial status of an organisation at any given point in time. It includes a list of all assets, liabilities, and equity so that one can quickly determine the amount of working capital available for use by the company. 

Before delving further, it is essential to learn these terms, which are an integral part of a balance sheet.

Asset – These can be any resources owned by an organisation which can be liquefied for value in terms of money. Assets can be tangible or intangible and can be used in the production cycle or can be liquefied to accumulate funds for the organisation. 

These are valuable items which a company possesses like cash equivalents, machinery, furniture, patents, property, plant, equipment, etc. 

Liability – By liability, we mean a company has financial debts, loans or obligations to be paid to other entities. An organisation might have several liabilities during its operational period due to several unplanned circumstances or to overcome any financial requirement at that moment. Therefore, loans, mortgages, accounts payable, accrued expenses, etc. are all part of liability. 

Equity – Equities can be defined as the difference between total assets to total liabilities. In case the liability is more than the value of the asset, then there is no equity. 

Therefore, assets can be represented as the sum of liabilities and equity.

A balance sheet is broadly divided into two sections, assets and liabilities. Both the sections contain several sub-sections under them. For instance, assets are grouped as investments, current assets, fixed assets, etc. These two columns are assessed, and the value of contributor’s equity is calculated. 

It helps determine the financial status of an organisation at any given point. If the value of assets is more than the cost of liabilities, then it has enough working capital to carry the day to day business operations else not. 

What is Profit and Loss Account?

A profit and loss account prepared for a company includes all the expenses and revenue generated detailed in a sheet. All the costs a company bears in an accounting year are mentioned in the expenses section. Likewise, the sheet also includes another column which consists of the revenues generated from various business operations. 

Finally, the amount of loss or gain is calculated by evaluating the expenses and revenues. If the value of revenue exceeds the total cost of expenses column, then the company is likely to earn profit, otherwise it is categorised as loss. It is to note that profit and loss accounts are created for an accounting year. 

Further, students need to learn the difference between profit and loss account and balance sheet so that they can understand why and when they are used in a business. 

Profit and Loss Account Vs Balance Sheet 

• A balance sheet determines if or not a company is financially stable or secure to carry various business operations. This is determined by listing the total value of assets, liquidity, and equity.

• A profit and loss statement doesn’t depict the financial condition of an organisation but its economic production status. It is an estimation of a company’s total expenses and revenues to calculate the accrued profit or loss. 

• While the balance sheet is a sheet mentioning the assets and liabilities, profit and loss evaluation is concerned with an account. 

• Difference between balance sheet and profit and loss account is that a balance sheet can help determine financial status of the organisation on a particular date and the P&L account is to determine the profit or loss endured by them in a fiscal period. 

• A balance sheet is prepared on the last day of a financial year while the profit and loss account is maintained for the whole accounting period. 

• Value of assets, liabilities, and equity are mentioned in the balance sheet and profit and loss account of a company consisting of expenses and revenues to determine the financial standing. 

Subsequently, students will be able to improve their understanding of the balance sheet and profit and loss account of any company by going through these notes and examples. In case they are seeking more comprehensive study notes, can help them in this venture with quality study material.