Introduction to balance sheet

introduction to balance sheet

Introduction to balance sheet

This a crucial financial statement that displays the company’s total asset and how these assets are being financed. Based on its structure the right side are liabilities and shareholder equity while the left side is the assets. Assets and liabilities are separated into two categories current asset/liabilities and non-current (long term) asset /liabilities. therefore, the main components of a balance sheet are;

1.Assets section

It usually contains current assets which are comprised of cash and its equivalents. Cash and most liquid all assets are in the first line of assets while its equivalent is those the company can liquidate in short notice.

Accounts receivable -These accounts include the balance of all sales revenue still on credit.

Inventory section includes the number of raw materials, work in progress goods and finished goods. This account is used on reporting sales of goods under the cost of goods sold in the income statement.

Non -Current Assets-includes tangible and intangible fixed assets. Physical assets usually are Plant, Property and Equipment are depreciate except for land. The intangible fixed assets can be identifiable or unidentifiable; they include brand, patent and licenses.

2.Liabilities Section

Liabilities, in general, are usually amounts owed to creditors for past transactions and may contain the word” payable”.

Current Liabilities-Account payable -These are the amount a company owes suppliers for items or services purchased on credit. May consist of Current Debt/Notes payable, Current position of long-term debt

Non-Current Liabilities-They include bonds payable and long-term debt.

Bonds payable these include the amortized amount of any bonds company has issued while Long term debt it consists of the total amount of long-term debt and it is derived from debt schedule

3.Shareholder Equity section

Share capital these are the value of funds that shareholder have invested in the company while Retained Earnings are total amount of net income company decides to keep.

A balance sheet is usually used in financial modelling and is a great tool to analyze a company financial position. Furthermore, on company performance, they can be used to calculate financial ratios, also together with other financial statements like income statement they can give an overall picture of business financial health and the efficiency of the company to utilize its resources. A comparison between current company assets to its current liabilities can provide insight on company liquidity, with existing assets being preferred to be higher than current liabilities.

Tip: In a balance sheet, the total sum of assets must equal the sum of liabilities and owner’s equity.

Understanding the role of a balance sheet makes for companies on financial health makes it crucial. The information used to make the balance sheet are acquired from the company ledger that’s why your total figures should be the same as the ledger. Preparing them thus become easier if developed keeping in mind the accounting equations. Accounting assignments on the balance sheet can be nerve-wracking, but our team understand all that pertains to balance sheets assignments and for those who are stuck with who can do my accounting homework for me? We are offering our services on accounting, and no question is ever hard for us.