|Author: Ramnarayan Shah 24 Jan 2010 Member Level: Silver Points : 4 (Rs 2) Voting Score: 0|
|Accumulated loss is not shown as an asset; it is shown on assets side of balance sheet.|
Profit is part of capital or net worth. If there is profit, then capital will increase and vice-versa.
Liability side balance sheet can be described as sources of fund. Capital and Profit are sources of fund. If there is loss, then it is application of fund. If you show on the loss on liability side then it is meant that it is sources of fund but actually because of loss resources will be reduced so it is illogical to show the accumulated losses on liability side.
Further, if losses are shown on assets side then it is meant that total assets will be reduced to that extent. Because Net Worth can be calculated by two different ways:
1) Net Worth = Capital + Reserves and Surplus – Miscellaneous Expenditures – Accumulated Losses
2) Net Worth = Total of Assets Side - Miscellaneous Expenditures – Accumulated Losses