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Chapter 3: Making out the Balance Sheet

In the balance sheet you enter all what you own, and all what you owe. The difference is called Net Capital. The Balance Sheet is an important part of the accounts, because errors influence directly on the period's result.

 

 

The Balance Sheet in the Accounts

To make regular accounts for a period is needed Balance Sheets at beginning and at end. In the Balance Sheets you enter all what you own, and all, what you owe. The difference is called net capital (or net debt, if negative)

 

The Balance Sheet is an important part of any accounts: you can make accounts containing only of two Balance Sheets plus information of how much money paid to the owner. Then you can calculate the profit in this way:

 

The most simple sort of account

 

Net Capital at end

333211

- Net Capital at beginning

-307374

+ Private consumption of the year

+48424

= Surplus of the year

= 74261

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In making out the Balance Sheet, you have several problems. What is the value of land, buildings, livestock, fertilizer in the fields, etc.?

 

Examples of errors in balance at end: The livestock is 10000 kroner too low, and stocks are 5000 kroner too low. The surplus from above will then be altered in this way:

 

Example 1

With error

Without error

Net Capital at end

318211

333211

- Net Capital at beginning

-307374

-307374

+ Private consumption of the year

+ 48424

+ 48424

= Surplus of the year

= 59261

= 74261

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The surplus is lowered, because the assets are valued too low.

 

Another example: Error in both balance at beginning and balance at end. Value of livestock is 10000 kroner too low, and stocks are 5000 kroner too low.

 

Example 2

With error

Without error

Net Capital at end

318211

333211

- Net Capital at beginning

-292374

-307374

+ Private consumption of the year

+ 48424

+ 48424

Surplus of the year

= 74261

= 74261

.

When you make the same error at beginning and at end, the surplus will be unchanged -- but the balances are still wrong.

 

If you make up the values in an inaccurate way, it may influence the single year's result essentially

 

Balance at end of year 1

 

 

 

Assets

 

Liabilities

 

Real Estate

655350

Mortgage debt

381649

Machines

61188

 

 

Livestock

133250

Bank debt

57821

Stock

5250

Other debt

114101

Securities

11798

 

 

Car

15876

 

 

Outstanding accounts

2115

 

 

Cash

1956

Net Capital

333212

Sum

886783

Sum

886783

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The figures in the balances at the end of one year and at beginning of the next year are identical. That gives coherence between the different years

 

Balance at beginning of year 2

 

 

 

Assets

 

Liabilities

 

Real Estate

655350

Mortgage debt

381649

Machines

61188

 

 

Livestock

133250

Bank debt

57821

Stock

5250

Other debt

114101

Securities

11798

 

 

Car

15876

 

 

Outstanding accounts

2115

 

 

Cash

1956

Net Capital

333212

Sum

886783

Sum

886783

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