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What Is Balance Sheet And Its Legal Form

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Producing financial accounting statement is very crucial for business because it should adequately provide a picture of the financial performance of a business. To concern this issue businesses produce financial statements on regular basis adhering to one common standard. On of these documents is the statement of financial position, also known as a balance sheet. It basically shows business’s assets or resources that it holds against its obligations or claims to other parties (McLaney and Atrill, 2014). Balance sheet analysis is useful for investors to verify the profitability of investment for a business. Analysis can warn of potential problems and, if done accurately determine what the business really “worth”. The aim of this essay is to…show more content…
If the information listed in the document matches this formula than the company is liquid, i.e. it can pay debts timely. Each of the three sections has several accounts within it to give an investor idea about what the company owns and owes. Total assets on the balance sheet are grouped into two categories: current and non-current, referring to the time period that they are held. All assets should be measured in monetary terms and controlled by the business. Also assets are divided into tangible (machinery, plant, cars) and intangible assets (patent, brand). Equities and liabilities, which constitute claims, should balance the assets (Accountingtools.com, 2015). It is called the principle of double entry: for example, cash balance might decrease by the amount of a purchase but capital will increase by the same amount. Liabilities are also classified into current and non-current to indicate the amount of obligations that must be shortly met and long-term raised finance. Figures of liabilities and capital show how much finance the owners invest and how much is contributed by the outside lenders. Potential investors can derive a lot of useful relationships from the balance sheet figures, especially if comparison is made over time – in dynamics. Businesses usually prepare a statement of financial position on the last day of its annual reporting period. In the UK companies are free to choose this period and it is
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