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

Operating cycle, discuss the applicability of an operating cycle to poultry...

discuss the applicability of an operating cycle to poultry business in uganda.

Enumerate about the turnkey operations, Enumerate about the Turnkey operati...

Enumerate about the Turnkey operations An illustration of a turnkey business would be a franchise for example immediate brand, systems and product with exclusive territory. A t

What are the options available for growth, What are the options available f...

What are the options available for growth Joint venture   A joint venture is when a separate company is formed, in which every member holds an equity st

Define advantages and the disadvantages of a new stock issue, What are the ...

What are the advantages and the disadvantages of a new stock issue? A new stock issue increases funds and reduces the riskiness of the firm. It as well tends to send a negative

financial crisis, Hedge funds are short two types of funding options. Desc...

Hedge funds are short two types of funding options. Describe in detail what these options are.   Describe why these options become more valuable during a financial crisis.   During

Compute the discount and premium, Suppose the bid-ask spot prices for one B...

Suppose the bid-ask spot prices for one British pound are $1.50 and $1.60 respectively. 1. Compute the bid-ask prices for one US dollar in terms of British pound. 2. Suppose

Calculate the price of a put option contract, The price of a non-dividend p...

The price of a non-dividend paying share, St, follows a geometric Brownian motion process. The current price of the share is £10 and volatility of the share price process is 12% pe

Illustrate the scope of financial management, Q. Illustrate the Scope of Fi...

Q. Illustrate the Scope of Financial Management? Financial management as an educational discipline has undergone notable changes over the years with regard to its scope of func

Basic objectives of cash management, Q. Basic objectives of cash management...

Q. Basic objectives of cash management? The basic objectives of cash management are two-fold: 1) To meet the cash disbursement needs (payment schedule); and 2) To minimize f

Risk associated with foreign direct investment, Discuss the risk associated...

Discuss the risk associated with Foreign Direct Investment. How do these risks differ from those encountered in domestic investment.

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