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

Ratio analysis, define ratio analysis. explain the advantages of ratio anal...

define ratio analysis. explain the advantages of ratio analysis

Explain the definition of arbitrage, Give a full definition of arbitrage. ...

Give a full definition of arbitrage. Answer:  Arbitrage can be illustrated as the act of concurrently buying and selling the same or equivalent assets or commodities for the aim

Tax-backed debt obligations, Tax-backed debt obligations are the debt...

Tax-backed debt obligations are the debt instruments issued by counties, states, cities, towns, special districts and school districts. These are secured by some

Surplus economic unit deal with a deficit economic unit, What can a financi...

What can a financial institution often do for a surplus economic unit that it would have difficulty doing for itself if the surplus economic unit (SEU) were to deal directly with a

Representation of generator winding, Q. Representation of generator winding...

Q. Representation of generator winding? The notation using subscripts is such that VAB is the potential at point A with respect to point B, IAB is a current with positive flow

Contribution plans-pension fund plans, Defined Contribution Plans In de...

Defined Contribution Plans In defined contribution plans, the contributions made by or on behalf of the employee are accumulated and paid on retirement along with such return a

How to measure the firm risk of a capital budgeting project, Explain how to...

Explain how to measure the firm risk of a capital budgeting project. The firm risk of a capital budgeting project measures the force of adding a new project to the existing pro

Explain short- and long-term financing mix, Q. Explain Short- and long-term...

Q. Explain Short- and long-term financing mix? In forming a fresh business there is no business history to present to the bank thus there is additional uncertainty which will n

Explain that many u.s. firms simply do not hedge, Recent surveys of corpora...

Recent surveys of corporate exchange risk management practices point out that many U.S. firms simply do not hedge. How would you explain this result? Answer:  There can be severa

What is the modigliani and miller theory of dividends, What is the Modiglia...

What is the Modigliani and Miller theory of dividends?  Explain. The Modigliani-Miller theory of dividends says so as dividend theory is irrelevant.  They claim so as to it is

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