Concept explainers
It is a summary of the financial status of an organization. Users of the financial statements understand the working of the company with the help of a balance sheet.
To determine the way by which the balance sheet information helps the users of financial statements.
Explanation of Solution
Balance sheet provides information on the following:
- Nature of investment
- The amount of investment
- The value of the resources present in the organization
- Obligations to the creditors
- Owner’s equity
- Income of the organization
- Expense of the organization
The information in the balance sheet provides basis for the following:
- Computation of the
rate of return - Evaluation of the capital structure
- Assessment of liquid position of an organization
- Assessing the financial flexibility of an organization
Thus, the way by which the balance sheet information helps the users of financial statements is discussed.
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