Difference between Income Statement and Balance Sheet

The term 'grouping' means putting together items of a similar nature under a common heading or in a group with reference to assets and liabilities. For example : accounts of debtors are grouped under 'Trade Debtors'.

Liabilities side of the Balance Sheet:
(i) Capital
(ii) Long-term Liabilities
(iii) Current Liabilities
(iv) Secured Loans
(v) Unsecured Loans.

Investments mean placing or spending money or something with the objective of earning an income or profit from it. Amount invested in the business is known as capital.
Following are the examples of investments:
(i) Property
(ii) Shares
(iii) Debentures or Bonds
(iv) Government securities, etc.

Goodwill is an intangible asset as it cannot be seen or touched. Fictitious assets have no market value, but goodwill has a market value as it can be sold. Therefore, goodwill is not a fictitious assets.

Fictitious Assets: Items shown as asset in the Balance Sheet, having no market value, are called fictitious assets. For example: Preliminary expenses, share issue expenses, underwriting commission, Mise. Expenditure, accumulated losses, etc.

Tangible assets refer to those assets which can be seen and touched such as land and building, machinery, furniture, goods, cash in hand, etc. Intangible assets are those assets which have no physical existence, but can be sold and purchased. Goodwill, patent right, copyright and trademarks are some of the examples.

Expenses relating to office maintenance and general administration are included in this category. Following are the examples of office and administrative expenses:
(i) Salaries or Office Salaries or Salaries and Wages
(ii) Establishment Expenses
(iii) Rent, Rates and Taxes
(iv) Printing and Stationery
(v) Postage, Telegram and Courier Charges
(vi) Telephone Expenses
(vii) Insurance Premium
(viii) Newspaper and Magazines
(ix)Audit Fees
(x) General Expenses
(xi) Lighting or Office Lighting
(xii) Sundry or Miscellaneous Expenses

Closing stock indicates the goods lying unsold in the godown at the end of the accounting year. In trading concerns, it includes only finished goods. In manufacturing concerns it may include raw materials, semi-finished goods and finished goods. Stock is also called inventory. It is shown on the credit side of Trading Account. Usually it is given as adjustments. Sometimes it may be given in Trial Balance. In that case, it should not be shown in the Trading Account and should be shown in the assets _ side of the Balance sheet.
Valuation of Stock: According to prudence concept, stock is valued at cost or market price, whichever is less. Here, cost includes purchase price and direct expenses incurred on purchase of goods or on its manufacturing.

Cost of Goods Sold = Opening Stock + Net Purchases + Direct Expenses - Closing Stock
Direct expenses are carriage on purchases, freight, octroi, factory expenses, manufacturing expenses or any other direct expenses.
Cost of Goods Sold = Sales - Gross profit.

Final accounts are also known as financial statements. Financial statements are organised summaries of detailed information about operating results and financial position of the concern. These are prepared at the end of the accounting period, generally one year. Financial statements normally include the following:
(i) Trading and Profit and Loss Account, and
(ii) Balance Sheet.

The expenditure for which payment has been made or a liability has been incurred in the current year, but deferred from being charged against the income of the current year is called deferred revenue expenditure. Such deference is based on the pre-assumption that it will be of benefit over a subsequent period or periods. These are written off over the period of benefits. For example, a large amount is spent on advertising to launch a new product or to explore a new market.

Following are some of the examples of revenue expenditure:
(i) Cost of material & goods:
In case of materials and goods purchased, only that part of expenditure which has been consumed or sold during the year, is considered revenue expenditure for the current year and the balance is carried to the next year.
(ii) Manufacturing expenses such as wages, factory expenses, power and fuel, etc.
(iii) Office and administration expenses such as salaries, rent, insurance, electricity, telephone charges, postage and telegram, etc.
(iv) Selling and distribution expenses such as advertising and sales promotion expenses, travelling expenses, salesman's salaries and commission, etc.

Following are the examples of capital expenditure:
(i) Purchase of business premises.
(ii) Purchase of machinery.
(iii) Acquisitionof patent, copy right or a trade- mark, and
(iv) Installation charges of machinery