Balance sheet, Financial Management

Assignment Help:

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


Related Discussions:- Balance sheet

What are the reasons for mergers and acquisitions, Reasons for mergers an...

Reasons for mergers and acquisitions The key reasons for mergers and acquisitions, is to maximise shareholder wealth otherwise it wouldn’t be worthwhile. R

Price of the share as per gordon''s model, Considering the following inform...

Considering the following information, what is the price of the share as per Gordon's Model?  Details of the Company

Constructing the binomial interest rate tree, The fundamental princip...

The fundamental principle is that when a tree is used to value an on-the-run issue, the resulting value should be arbitrage free i.e., it should be equal to the o

Receivables management, Receivables Management The decision on whether...

Receivables Management The decision on whether to grant or not to grant credit to a particular customer can be taken if certain subjective probabilities of the payment pattern

Non-interest rate indexes, Generally, an interest rate or an interest...

Generally, an interest rate or an interest rate index is used as a reference rate for However, through financial engineering, issuers have been able to construct

Calculate the net present value and payback period, Sarkozy Ltd is consider...

Sarkozy Ltd is considering the selection of one of a pair of mutually exclusive investment projects. Both would involve purchase of machinery with a life of five years. Projec

What is capital rationing, What is capital rationing? Should a firm practic...

What is capital rationing? Should a firm practice capital rationing? Why? Capital rationing is the practice of putting dollar limits on what will be invested in new capital bud

Cash flows from mortgage- backed security, It is a well known fact th...

It is a well known fact that the value of a financial claim reflects the present value of the cash flows produced by the financial claim. While valuing an MBS an

Financial issues of divestitures, FINANCIAL ISSUES OF DIVESTITURES Many...

FINANCIAL ISSUES OF DIVESTITURES Many corporations review the business portfolio to determine the operations that fit their core strategies. The firm's desire to achieve more f

What are the main criticisms of the payback method, How do we calculate the...

How do we calculate the payback period for a proposed capital budgeting project?  What are the main criticisms of the payback method? We calculate the reimbursement period for

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd