Accounts

few key points about balance sheet of comapny: * It balances two sides assets and liabilities * liabilities constitute the sources of all the funds (share issues, bank loans, debt), Assets show the use of funds( fixed assets, investments, cash, inventories) * "reserves and surplus" is a liability, it is the amount that a company owes to shareholders in the event of discontinuation of business. It in no way represents the cash available. * Cash is reported on the asset side. This cash along with other readily marketable securities forms a company's warchest for expansion. * Every year, a business earns some cash from operations, spends some on capacity additions like buying new businesses or fixed assets, it might pays dividends to shareholder. the net of these transactions gets added to previous years cash balance on balance sheet. * so net net, we can say, reserves and surpluses, is the part a business got to pay to its shareholders in event of liquidation of assets. Remember reserves and surpluses is only a part of total shareholder's equity and this is in book value terms not at market price. * a company can issue new shares to collect cash for expansion though. Again, this cash will go to the asset side and can be convered into fixed assets. the shares issued will result in increase in shareholder's eqity, ie a liability of company to shareholders.