Reference no: EM131937639

Part 1: Order of the income statement

Income Statement

Amount

Sales

Cost of goods sold

Gross profit

Operating Expenses

Selling expense

Administrative expenses

General Expenses

Other Revenues and expenses

EBITDA

Interest expenses

Tax

Depreciation

Net Income

Part 2: Classification of financial Statement

Financial Statement

Short-term assets

Long-term assets

Short-term liabilities

Long-term liabilities

Owner equity

Cash

Inventory

Accounts receivables

Plant and equipment

property

Notes payable

Accounts payable

Accruals

Mortgage

Retained earnings

paid in capital

Part 3

A balance sheet equation is a statement that shows the state of a business at a particular time by computing assets, liabilities, business capital and balancing income over expenditure (Balance Sheet, 2016). The equation is a crucial part of accounting as it forms the element for entire double entry accounting scheme.

The equation starts with assets. Assets are all the resources that companies use to achieve its goals (Riggs, 2007). Assets may be long term or short term. Short-term assets include cash either solid or liquid form, inventories, and account receivable.

Long-term or fixed asset includes machinery, tools, vehicles and all other properties. In most cases, the fixed assets are not fully owned by the business. This suggests that a loan might have been taken to purchase a vehicle, a mortgage on a construction, or even used money from shareholders. All these loans are taken into consideration in the liability section of a balance sheet equation (Halpin & Senior, 2009).

Claims on business assets by the financial institution, other companies or people is called liability. It is fully guaranteed that a running business has a debt somewhere and ignoring this concept would lead to misleading business accounts (Consolidated Balance Sheet, " n.d). Mortgage and loans are examples of long-term liability while debts in terms of notes payable, accounts and accruals are short-term liabilities.

The third part of the equation is equity. Capital also referred as equity is shareholders claim on the company properties. Money contributed by owner at the start of the business or shareholders for a proprietorship ticket is accounted for here (Riggs, 2007). Equity also accounts for returned earnings that are money held in the business to be reinvested.

The summation of claims by shareholders and claims by debtors gives total company assets.

Assets = Liabilities + Equity

References

The Balance Sheet. (2016).

Consolidated Balance Sheet. (n.d.). SpringerReference.

Halpin, D. W., & Senior, B. A. (2009). Financial management and accounting fundamentals for construction. Hoboken, NJ: Wiley.

Riggs, H. E. (2007). Understanding the financial score. San Rafael, Calif.: Morgan & Claypool Publishers.

INSTRUCTOR QUESTION:

How does the statement of cash flows enhance the balance sheet?

NEED FOLLOW-UP RESPONSE:

Response only needs to be 2 paragraphs with 1 reference.