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10.4 Double Entry Book Keeping (Section A)—ISC XII

(b) Inventories
Inventories mean stock. It is the tangible asset held
(i) for the purpose of sale in the normal course of business;
or
(ii) for the purpose of using it in the production of goods meant for sale or service to be rendered.
Inventory may be opening or closing inventory or both.
In case of trading company, it comprises of stock of goods traded in.
In case of a manufacturing company, it comprises of raw materials, work-in-progress and finished
goods.
Inventories are valued at lower of cost or net realisable value, i.e., market price.
(c) Trade Receivables
Trade Receivables are the amounts receivable for sale of goods or services rendered in the
normal course of business receivable within 12 months of the reporting date or within the period
of Operating Cycle.

(d) Cash and Cash Equivalents
It includes cash in hand and balance with bank.
(e) Short-term Loans and Advances
Short-term Loans and Advances are loans and advances given by the company that are repayable or
adjustable within 12 months from the date of Balance Sheet or within the period of Operating Cycle.
(f) Other Current Assets
All other current assets that are not shown or classified under the above heads are Other Current Assets.

SUMMARY OF THE CHAPTER

• According to Section 2(40) of the Companies Act, 2013, Financial Statement includes:
(i) a Balance Sheet as at the end of the financial year;
(ii) a Profit and Loss Account (Statement of Profit and Loss);
(iii) Cash Flow Statement for the year;
(iv) a Statement of Changes in Equity, if applicable; and

(v) any explanatory note annexed to, or forming part of, any document referred to above.
• The form and contents of the Balance Sheet are prescribed in Schedule III, Part I of the Companies Act, 2013.
• Balance Sheet: Balance Sheet is a statement which shows the financial position of an enterprise as at a
particular date. It lists the balances of various assets and liabilities as at a particular date.
• Appropriation of Profit: Profit is appropriated out of the balance in Surplus, i.e., Balance in Statement of
Profit and Loss under Reserves and Surplus. Profit for the year is transferred and added to the existing
balance and appropriations (say transfer to Debenture Redemption Reserve, General Reserve, Workmen
Compensation Reserve, Dividend Payable, etc.) are deducted. Appropriations are shown under appropriate
reserves (Debenture Redemption Reserve, General Reserve, Workmen Compensation Reserve, etc.). Proposed
Dividend is shown as contingent liability in Notes to Accounts.