Balance sheet, Financial Management

Balance Sheet:

The balance sheet measures the financial position of the business at a particular point in time.  It is also called Statement of Financial Position.

The balance sheet is a statement of assets, liabilities and owner's equity. The balance sheet shows what a business owns versus what the business owes.

Simply put, the balance sheet follows the fundamental accounting equation of: 

ASSETS = LIABILITIES + OWNERS EQUITY

Assets can be described as what the business has under its control. Liabilities are what the business owes to parties outside of the business (creditors, banks). Owner's equity is the portion of the values of assets not covered by the value of the liabilities.

Consider your house. It is an asset, owned by you and financed partly by a bank via a mortgage.

If the house is worth $450,000 and the outstanding balance of the housing loan was $250,000, your balance sheet would look as follows:

ASSETS ($450,000) = LIABILITIES ($250,000) + OWNER'S EQUITY ($200,000)

Some terminology used in the context of the balance sheet includes:

  • Current Asset: a short term asset available to be used by the business generally at no longer than 12 months notice. Examples include cash at bank.
  • Non-Current Assets: a long term asset. Generally cannot be turned into cash within 12 months. Examples include buildings that the business owns or plant and equipment.
  • Current Liabilities: short term liabilities, usually payable within 12 months. Examples include trade debts (accounts payable), short term borrowings.
  • Non-current Liabilities: long term liabilities generally not payable within 12 months. Examples include long term debt (such as mortgage finance to purchase property).
  • Capital: the amount invested in the business by the owner. This amount, in effect, is owed by the business to the owner.

A typical balance sheet could look as follows:

Brown Partner's Real Estate

Balance Sheet as at 30 June 2008 

Assets ($)

Liability and Owner's equity

Cash                            100,000

Debtors                         20,000

Deposits                          6,000

 

Creditors                     20,000

Bank Overdraft             5,000

Other                           12,000

 

Total Current Assets                        126,000

 

Equipment/Fit out        80,000

Motor Vehicle              20,000

 

Total Non-Current Assets               100,000

Total Current Liabilities                     37,000

 

Bank Loan                   25,000

 

 

Total Non-Current Liabilities            25,000

 

 

 

 

Capital                                                                                      84,000

Profit YE 30/6/08                                                                                80,000

 

Owner's Equity                                 164,000

Total Assets                                      226,000

 

Total Liabilities & Equity                 226,000

Posted Date: 10/1/2012 4:35:13 AM | Location : United States







Related Discussions:- Balance sheet, Assignment Help, Ask Question on Balance sheet, Get Answer, Expert's Help, Balance sheet Discussions

Write discussion on Balance sheet
Your posts are moderated
Related Questions
you are checking a financial analyst''s recommendation. the analyst projects a company''s stock price to be P72 per share in 3 years. the most recent annual dividend was P1.68 per

The risk free rate is 10 percent and the expected return on the market portfolio is 14 percent. A firm considers a project that is expected to have a beta of 1.3, whereas the beta


What do you mean by Interest rate swap? Explain the various types of interest rate swap Meaning: It is an arrangement where by one party exchange one set of interest rate paymen

What is a financial ratio? A financial ratio is a number that denotes the value of one financial variable that is relative to another.  Put much more simply, a financial ratio

Assume today is 3 December 2009. Helen is 30 years old and has a Bachelor of Business. She is currently employed as a personal banker for ANZ banking group in Sydney and earns $380

Q. What is Unsystematic Risks? Unsystematic Risks stems from a managerial inefficiency, technological change in the production process, availability of raw material, changes in

Why does a tax create a deadweight loss?  What determines the size of this loss? A tax makes deadweight loss by artificially increasing price above the free market level, so de

What is Cost of Equity Capital? Describe please.

what is amount of cash dividend if investor buys share of 100 at premium of 400.