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
CLASSIFICATION OF SOURCES OF FINANCE In the market, there are several sources of finance, with conflicting risk characteristics and with conflicting cost structures. Numerous m

Typically in a bond, we find an inverse relation between the price and the required yield. We know that the price of the bond is the present val

A Company has the following capital structure: Debt: $2,000,000 Preferred: $1,000,000 Common: $4,000,000 Retained Earnings: $3,000,000 The amounts shown gives book values.  The m

Aims of FSA The aim of FSA is to promote efficient, orderly and fair markets, and to help retail consumers to get a fair deal. In fact, FSA has set out its aims under three bro

Global Scenario The Hedge Fund industry has captured over US $ 2 trillion in assets globally by the end of year 2006. According to an investor survey revealed for the Hedge Fun

Margin Trading: Suppose an investor wants to buy 100 Reliance Energy shares, whose market price is Rs.500. This transaction requires Rs.50,000 but the investor has only Rs.30,0

Advantage of mutual funds Mutual Funds are advantageous to individual investors in relation to their direct involvement in investment portfolio activity covering the following

explain for factors influencing design for dividend policies

Syntax of Accounting Procedure The general accounting practices are: (a)  Do not consider any income or gain till the similar is realised in cash; (b)  Create or make pr

Manage a project or clearly defined piece of work from beginning to end. This may include setting up a budgetary system.