What Is Balance Sheet And Its Legal Form

In accounting there is much to be learned, about the financial aspects of a business. In the past five weeks I have learned the importance of financial reports and how they relate to the success of an establishment. These reports may include balance sheets and income statements, which help accountants and the public grasp the overall financial condition of a company. The information in these reports is really significant to, managers, owners, employees, and investors. Managers of a business can take and deduce financial

The balance sheet is considered a point in time statement because it elaborates on the current position of the organization. Based on the balance sheet, the organization is able to make an educated decision to know if it’s the best time to pursue additional business. The balance sheet is usually reviewed by a creditor when searching for new opportunities. Basically, the creditor determines the company’s position by subtracting the company 's liabilities from the assets. Liabilities are the debts and obligations a facility, regardless of the magnitude of the business. Once the liabilities have been subtracted from the assets, a stakeholder 's equity is determined.

The key components of the balance sheet reflect the financial position shown in the three permanent accounts: assets, liabilities, and owners’ equity. Assets are listed from most liquid to least liquid- liquidity meaning the closest or quickest form of cash. That being said, current assets are defined as cash, marketable securities, accounts receivable, inventory, and prepaid expenses. The opposite of assets, liabilities represent current and noncurrent obligations for which the company is committed. Current liabilities can include accounts payable, taxes payable, and salaries payable. Noncurrent liabilities represent commitments that extend longer than one year, such as bank loans, bonds and lease obligations. The final account on the balance sheet is owners’ equity. This represents the blood, sweat, and tears that the owner put into the company in an effort to realize a vision and see it come to fruition. The poetic version aside, owners’ equity also represents the

The balance sheet is a summary of a person or organization's assets, liabilities and Ownership equity on a specific date, such as the end of its financial year. A balance sheet is often described as a snapshot of a company's financial condition and indicates what the firms owns and how theses assets are financed in the form of liabilities or ownership interest (Williams, Jan R 2008). Intent to answer how much did the firm make or lose and what is a measure of its worth? (Block, Hirt 2005).

It is important to understand the differences in how earnings and liabilities are generated or reported for different financial institutions. This paper will describe key points regarding the balance sheets of different financial institutions. Commercial Banks must mitigate interest rate and default risk, however, when a major financial crisis erupts they must have enough reserves on hand to cover their liabilities. Insurance companies use the float from the premiums paid in to invest their

Now that you understand the different aspects of the balance sheets and the benefits of having one, it is a good idea to look at how to best interpret a balance sheet. Keep in mind that just like with many other financial statements, it is often helpful to view and compare balance sheets from different periods. This provides you a better picture of how the business has been able to develop its assets and liabilities over the years.

Financial statements are important tools that are used by owners, managers, and investors of a company in order to analyze profitability as well as where money is being spent and where it is coming from. In order to explain further about how the financial statements are utilized, I have provided a brief breakdown of the income statement, the balance sheet, and the statement of cash flows.

Chapter 17 covers the financial statement analysis and ratios. Financial statement analysis is the process of examining financial statements that will depict the financial position of the company allowing them to make better financial decisions. A typical financial statement consist of a balance sheet, income statement, cash flow statement and notes to account. The most common being the balance sheet and the income statement. The balance sheet, also referred to as a statement of financial positon, is usually made up of assets and liabilities and provides information about the financial position of the company. It is a two sided report, assets on one side, and liabilities on the other. Liabilities typically include accounts payable, accrues expenses, income tax owed, stockholders’ equity (net worth), and loans. The income statement, also referred to the earning and loss statement, depicts the profitability of the company. It shows to total sales revenue for one year. The expenses the company incurs in producing finished good to sell is subtracted from the sales revenue. Also deducted is the operating cost expenses and the deprecation. When analyzing the income statement, it is important to note that the profitability isn’t just the total profit. It is important to look at the ratio of expenses as a percentage of profit. A company with high profits and high expenses could easily be mismanaged.

According to Melicher and Norton (2014), the primary purpose of the balance sheet is to summarize a company’s overall financial position at a fixed point in time – typically the conclusion of a quarter or year. A balance sheet is differentiated from an income statement in that the former is, effectively, a snapshot of a business’s financial position while an income statement provides a reflection of financial performance over time. At its most basic, the balance sheet provides details on the firm’s assets, liabilities, and its shareholders’ equity as at a specific date.

Balance sheet reveals the summary of financial status or position at a point on a particular time. It provides assistance to viewer in determining the different aspects of entity, for instance, Future cash flows, Risk or financial position (Friedlan, 2010, p. 37). There are certain segments of balance sheet and those segments are assets, liabilities and owners’ equity. The relation among them is given below:

Quite often potential investor and shareholders in a business enterprises desire to have further insight about financial strengthens and weaknesses of the firms so as to determine its corporate performance within a specified period of time. The basic financial analyses are the balance sheet, trading profit and loss account or income statement, retained earnings statement and sources and uses of funds statement. Management, creditors, investors and in others to form their judgment useful. The analysis of financial statements has been discovered as one of the strategic ways of determining the financial status and corporate performance of the organization, since many believed that the efficient and effective utilization of available finance to a large extent determines the performance of an organization.

A balance sheet can be described a financial statement that seeks to show the financial position of an organization. It shows the assets, liabilities and the equities of an organization at any given time. The assets of an organization can be described as the resources owned and/or controlled by the organization arising from past transaction and for which the organization can expect future benefits. The liabilities of an organization can be described as the obligations arising from past transaction that the company is expected to forgo future economic benefits to satisfy. Equities of an organization refer to the owners’ contribution to the organization. Equities are composed of owner’s contribution

Evaluating /measuring performance is essential for decision making process. This is based on financial statements which are vital to success of businesses and even individuals who rely on it as fair and meaningful summaries of day-to-day financial activities or transactions. That is why the understanding and analysis of financial statements with no bias is very important and that what makes this study crucial .In this study the previous topics will be addressed in an academic and explanatory way.

The balance sheet is considered a statement which represents the company’s financial position as of a specific date in which some call a snapshot of the company at a given time. (Melicher & Norton, 2015) It includes information on assets and liabilities. Assets may include current assets which include cash or any assets that can be converted within a year as well as fixed assets which include the physical facilities the company uses for production, storage, distribution or for the displaying of a company’s products. Liabilities on the other hand provide an idea of what is owed to the creditors and owners. This can include accounts payable, accrued liabilities that need to be met which come from current funds and operations. IT also includes notes payable. (Melicher & Norton, 2015)

Preparation and presentation of a company’s financial statements is a process that is laden with the use of estimates. The conceptual framework released by the Financial Accounting Standards Board indicates that a company prepares financial statements with the intention of assisting investors assess the company’s future cash flow prospects (Financial Accounting Standards Board, 2010). However, the process used by a company in assessing its cash flows is reliant on the use of estimates and conjecture. For example, the company has to determine the fair value of its assets on an ongoing basis if approximate value in the market is to be reflected in the financial statements. These values are arrived