INTRODUCTION- PRAVJYOTI(106-B)
An accounting Balance sheet shows the financial position of business at any given point in time. It is like a photo of a small business at that moment.
It is usually prepared at the close of a period such as quarterly, semiannually, annually, or even monthly. It consists of assets, liabilities and owner’s equity. The basic format of an accounting balance sheet is set up with two sides:
· Business owns (assets) on the left side
· Business owes (liabilities) and the value of a business to its owners (owner’s equity) on the right side.
The assets section of the balance sheet normally presents assets in the order that they will be converted into cash or used in operations.
The liabilities and owner’s equity section of the accounting balance sheet is usually presented with liabilities first with each liability listed in the order that the liabilities will be paid off.
REFERENCS- http://www.accountingcoach.com/ebookpackage.html
NEED OF BALANCE SHEET-
Balance sheet budgets are used by managers to plan financing, investing, and cash objectives for the firm. The business firm’s balance sheet shows how much money the firm is worth or its net worth. The balance sheet is stated in terms of book value.
The balance sheet is an indicator of net worth while the income statement or statement of profit and loss is an indicator of profitability.
The main item linking the Statement of Financial Position and Statement of Activities is Net Assets. In the for-profit world “net assets” would be known as equity, or the owner’s stake in the business.
· The Statement of Activities provides a detailed explanation of the most important change in equity, i.e. the net income/ (loss) for the accounting period. At the end of the period this is transferred to the Statement of Financial Position in the form of equity.
· Revenue (cash, or promises to give us cash, received from operations) increases our net assets. Expenses (cash spent during operations) decrease our net assets. The net difference between revenues and expenses is the net income (or loss).
· It shows how much money we have in the bank, how much money is owed to us in the form of grants receivable or other accounts receivable and how much money we owe (liabilities).
· It also shows us how much our other assets, like automobiles, buildings, or computers are worth.
In short, the balance sheet or statement of financial position shows the measure of our financial worth .
The simple personal finance definition =Assets – Liabilities = Net Worth
A personal balance sheet is a great way to get a quick check-up on finances.As in just about anything,we can either moving forward, or going backwards. If we are increasing assets or minimizing debts net worth should be growing. If it is getting smaller, then clearly need to make some changes.
REFERENCE-
http://www.notforprofitaccounting.net
PEPSICO INC | Balance Sheet
LINK:-http://finapps.forbes.com/finapps/jsp/finance/compinfo/FinancialIndustrial.jsp?tkr=pep&period=qtr
DISCUSSION:- SILKY(173-C)
The balance sheet must follow the following formula:
Assets = Liabilities + Shareholders' Equity
IMPORTANCE OF BALANCE SHEET-
1. The balance sheet shows what the business has(assets) and what the business owes against those assets(liabilities). The difference between the assets and the liabilities shows the net worth of the business.
2. The net worth of the business is important in that it is a measurement of the time the business is expected to stay in financial power.
3. The balance sheet also provides the business with information on how best it is able to pay its debts.
4. Underwriters also use the information in the balance sheet(working capital) to assess the business' ability to finance its operations.
5. The balance sheet assists the managers of businesses in making decisions regarding purchasing of equipments for the business.
6. Business managers need the balance sheet so as to decide the best source of credit for the business at that time.
7. The balance sheet shows the accounting equation in a physical representation.
8. The balance sheet also shows the owner's equity for example, it shows the value of the stock and the number of shares.
1. The fixed assets show assets that will be kept in the business to generate wealth for the company over a period of time e.g. machines, computers and buildings.
2. In contrast, the current assets, are turned into cash in the short period. For example, a trading company will buy stock, which it then sells on credit. When the debtors pay up, they will pay in cash. This cash can then be used to buy more stock.
3. Creditors due within one year, shows the short term liabilities of the business, i.e. money that the company must pay within the next twelve months.
4. Net current assets shows the current assets minus the current liabilities. It is important to have enough current assets (money coming in in the short period) to pay short term creditors (short term liabilities). In the example shown the current assets are £2,000 and the current liabilities are £1,000.
Therefore net current assets = £1,000.
5. Creditors due after more than one year are the longer term liabilities of the business, for example long term bank loans and mortgage repayments.
6. The total net assets of the business is calculated by taking away all the liabilities (short and long term) from all of the assets (short and long term).
Total net assets = (Fixed assets Current assets) - (Current liabilities long-term liabilities).
7. Finally the Balance Sheet is balanced. The Total Net Assets figure is £1000(i.e. assets are greater than liabilities by £1000). The assets that are not financed by external liabilities are financed by the owners - therefore the owners' capital is £1000.
Conclusion- MANVEEN(47-A)
The balance sheet, along with the income and cash flow statements, is an important tool for investors to gain insight into a company and its operations. The balance sheet is a snapshot at a single point in time of the company's accounts - covering its assets, liabilities and shareholders' equity.
The purpose of the balance sheet is to give users an idea of the company's financial position along with displaying what the company owns and owes. It is important that all investors know how to use, analyses and read one.
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