Balance Sheet Review.docx - The Balance Sheet Review FISV5600 Balance Sheet What is the purpose of a balance sheet It lists everything a company owns

Balance Sheet Review.docx - The Balance Sheet Review...

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The Balance Sheet Review FISV5600
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Balance Sheet What is the purpose of a balance sheet? It lists everything a company owns and owes at a moment of time. It provides a “snapshot” of its financial condition at one point. It is a scorecard that shows where money has come from and where it has gone. When a company is formed, it raises money to buy assets in one of two ways, either from creditors or owners. Creditors loan money to companies which forms liabilities that must be repaid at a later date. Owners either invest new company in a company or retain past earnings into the company instead of taking the profits out and spending them for themselves. These two sources of money are used to buy assets. Balance Sheet Description On a balance sheet, there are two columns. The left side contains all of a company’s assets. The right side contains the company’s obligations, which are debts and ownership. In a sense, the firm “owes” its owners their equity investment in the company. The balance sheet must “balance” each side, therefore: Assets = liabilities + equity. In essence, the balance sheet shows what the company has done with the money its raised. Another name for the balance sheet is “statement of financial position”.
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Typical Simple Balance Sheet
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