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

How do financial managers decide which proposed capital, For a given IOS an...

For a given IOS and MCC, how do financial managers decide which proposed capital budgeting projects to accept, and which to reject? For a given MCC and IOS, all independent pro

The rise of derivative market, The Rise of Derivative Market: In the 1...

The Rise of Derivative Market: In the 1980s, the process of liberalization and deregulation of the financial markets gained momentum when the British and American leadership l

Characteristics of hedge funds, Characteristics of Hedge Funds Hedge Fu...

Characteristics of Hedge Funds Hedge Funds are commonly referred to as "absolute return strategies", which means that many are designed to seek positive returns in most market

Brigham, how do legal consideration affect a firms credit policy

how do legal consideration affect a firms credit policy

Describe in brief about finance, Describe in brief about  finance Mana...

Describe in brief about  finance Managing this flow of funds resourcefully is the purview of finance. So we can describe finance as the study of the methods that help us plan,

Example of relationship between bond price and time, Illustration    ...

Illustration      Discount bond (5 yr. bond with 10% coupon) (expected rate yield at 12%) Premium bo

Write the format to place the order, Write the format to place the order. W...

Write the format to place the order. What are the risks involved in the delivery of products. Format of the order: ? Purchase order ? Acknowledgement form ? Material requisitio

Building blocks of a pass-through security, The main aim of securitiz...

The main aim of securitization that was initiated in the late sixties was to resolve problems of mismatch and protect the US mortgage financing system from macroe

Explain the time value of money, What is the time value of money? The m...

What is the time value of money? The meaning of time value of money is that money you hold in your hand today is worth much more than money you suppose to receive in the future

Illustrations of substantive tests, Illustrations of substantive tests ...

Illustrations of substantive tests Agree a sample of wages payments to the existence of these individuals and personnel records. Agree a sample of cashbook payments to

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