balance sheet

Examples of balance sheet in the following topics:

• Defining the Balance Sheet

  • A balance sheet reports a company's financial position on a particular date.
  • That specific moment is the close of business on the date of the balance sheet.
  • A balance sheet is like a photograph; it captures the financial position of a company at a particular point in time.
  • The exact accounts on a balance sheet will differ by company and by industry.
  • State the purpose of the balance sheet and recognize what accounts appear on the balance sheet

• Limitations of the Balance Sheet

  • A balance sheet is often described as a "snapshot of a company's financial condition. " Of the four basic financial statements, the balance sheet is the only statement which applies to a single point in time of a business' calendar year.
  • Fixed assets are shown in the balance sheet at historical cost less depreciation up to date.
  • Depreciation affects the carrying value of an asset on the balance sheet.
  • Therefore, the balance sheet does not show true value of assets.
  • Different methods of depreciation affect the carrying value of an asset on balance sheets.

• Balance Sheets

  • A standard company balance sheet has three parts: assets, liabilities, and ownership equity.
  • We have two forms of balance sheet.
  • Individuals and small businesses tend to have simple balance sheets.
  • Large businesses also may prepare balance sheets for segments of their businesses.
  • Contingent liabilities, such as warranties, are noted in the footnotes to the balance sheet.

• Components of the Balance Sheet

  • The balance sheet relationship is expressed as; Assets = Liabilities + Equity.
  • The balance sheet contains statements of assets, liabilities, and shareholders' equity.
  • The relationship of these items is expressed in the fundamental balance sheet equation:
  • As a company's assets grow, its liabilities and/or equity also tends to grow in order for its financial position to stay in balance.
  • Differentiate between the three balance sheet accounts of asset, liability and shareholder's equity

• Uses of the Balance Sheet

  • The balance sheet of a business provides a snapshot of its financial status at a particular point in time.
  • The Balance Sheet is used for financial reporting and analysis as part of the suite of financial statements .
  • The results help to drive the regulatory balance sheet reporting obligations of the organization.
  • The balance sheet is one of the financial reports included in a company's annual report.
  • Give examples of how the balance sheet is used by internal and external users

• Preparation of the Balance Sheet

  • Balance sheets are prepared with either one or two columns, with assets first, followed by liabilities and net worth.
  • Balance sheets are usually prepared at the close of an accounting period.
  • Liabilities are arranged on the balance sheet in order of how soon they must be repaid.
  • Any other obligations to creditors due within one year of the date of the balance sheet
  • Liabilities are arranged on the balance sheet in order of how soon they must be repaid.

• Balance Sheet Analysis

  • Balance sheet analysis is process of understanding the risk and profitability of a firm through analysis of reported financial information.
  • In financial accounting, a balance sheet or statement of financial position is a summary of the financial balances of a sole proprietorship, a business partnership, a corporation or other business organization.
  • A balance sheet is often described as a "snapshot of a company's financial condition".
  • Of the four basic financial statements, the balance sheet is the only statement which applies to a single point in time of a business' calendar year.
  • Balance sheet analysis consists of 1) reformulating reported Balance sheet, 2) analysis and adjustments of measurement errors, and 3) financial ratio analysis on the basis of reformulated and adjusted Balance sheet.

• Temporal Classification

  • Cash, receivables, and liabilities on the Balance Sheet are re-measured into U.S. dollars using the current exchange rate.
  • "Classified" means that the balance sheet accounts are presented in distinct groupings, categories, or classifications.
  • Most accounting balance sheets classify a company's assets and liabilities into distinct groups such as current assets property, plant, equipment, current liabilities, etc.
  • These classifications make the balance sheet more useful
  • Identify when it would be necessary to use the temporal method on the balance sheet

• The Statement of Equity

  • GAAP whenever comparative balance sheets and income statements are presented .
  • It may appear in the balance sheet, in a combined income statement and changes in retained earnings statement, or as a separate schedule.
  • Therefore, the statement of retained earnings uses information from the income statement and provides information to the balance sheet.
  • The retained earnings account on the balance sheet is said to represent an "accumulation of earnings" since net profits and losses are added / subtracted from the account from period to period.
  • The statement of retained earnings uses information from the income statement and provides information to the balance sheet.

• How Transactions Affect the Balance Sheet

  • Carrying out business transactions causes multiple accounts on a firm's balance sheet to be affected.
  • In short, a credit to asset accounts will cause an increase in the balance sheet accounts.
  • A debit to asset accounts will result in a decrease in the balance sheet accounts.
  • A credit to liability or equity accounts will result in a decrease in the balance sheet accounts.
  • A debit to liability or equity accounts will result in an increase in the balance sheet accounts.