Unformatted text preview: BALAN CE SHEET
Business Management Introduction: There are three key financial statements to measure the performance and health of a company. These are: 1. Cash flow statements 2. Income statement (in other words Profit and Loss Accounts) 3. Balance Sheet
The income statement shows the potential cash flows. And The cash flow statement shows the real cash flows. The balance sheet shows the cash owing or payable. Introduction to Balance Sheet:
Definition: summarizes a company's assets, liabilities and shareholders' equity at a specific point in time. [usually the last date of an accounting period]. It is a financial statement that On the balance sheet we can see the cash balance at the start and end of the period. It is said to be a snapshot of the company's strength at a moment in time.
But balance sheet does not necessary "value" a company, since assets and liabilities are shown at "historical cost" and some intangible assets (e.g. brands, quality of management, market leadership) are not included. Calculating Balance Sheet Balance Sheet must follow the following formula:
LIABILITIES + SHAREHOLDERS' EQUITY ASSETS= It is called Balance Sheet because the two sides balance out!!!!!
The company has to pay for all the things it has (assets) by either by borrowing money (liabilities) or getting it from shareholders (shareholders' equity) Little Explanation of contents of a Balance Sheet Assets: An asset is any right or thing that is owned by a business. It include land, buildings, equipment and anything else a business owns that can be given a value in money terms for the purpose of financial reporting. Assets are subdivided into two parts 1.Current assets and 2.Fixed Assets Current and Fixed assets
o Current assets: Current assets are any assets that can be easily converted into cash within one calendar year. Examples- Cash, money market accounts, accounts receivable, and notes receivable that are due within one year's time. Fixed assets: Fixed assets include land, buildings, machinery, and vehicles that are used in connection with the business o Liabilities: This includes all debts and obligations owed by the business to outside creditors, vendors, or banks that are payable within one year, plus the owners' equity. Liabilities are divided as well Current liabilities Long term liabilities Capital : The companies receive finance from their owners. This money is generally available for the life of the business and is normally only repaid when the company is "wound up". This is call Capital. To distinguish between the liabilities owed to third parties and to the business owners, the latter is referred to as the "capital" or "equity capital" of the company. In addition, undistributed profits are reinvested in company assets (such as stocks, equipment and the bank balance). Although these "retained profits" may be available for distribution to shareholders and may be paid out as dividends as a future date they are added to the equity capital of the business in arriving at the total "equity shareholders' funds". At any time, therefore, the capital of a business is equal to the assets (usually cash) received from the shareholders plus any profits made by the company through trading that remain undistributed. Example of a Balance Sheet: Balance Sheet TOTAL ASSETS Current Assets Fixed assets NET CURRENT LIABILITIES Total Assets less Current Liabilities Longterm creditors Provisions TOTAL NET ASSETS Equity shareholders' funds Minority interests Total Capital Employed (1,927) (24) 5,392 5,356 36 5,392 1,694 8,344 2,695 7,343 (amounts shown in ' millions) 10,038 Example of a Balance Sheet: Balance Sheet FIXED ASSETS Current Assets Shortterm creditors NET CURRENT LIABILITIES Total Assets less Current Liabilities Longterm creditors Provisions TOTAL NET ASSETS Equity shareholders' funds Minority interests Total Capital Employed (1,927) (24) 5,392 5,356 36 5,392 1,694 (4,389) 2,695 7,343 (amounts shown in ' millions) 10,038 What is Balance Sheet used for? The balance sheet give investors an idea as to what the company owns and owes, as well as the amount invested by the shareholders. A balance sheet helps a small business owner quickly get a handle on the financial strength and capabilities of the business. Balance sheets can identify and analyze trends, particularly in the area of receivables and payables. Balance sheets, along with income statements, are the most basic elements in providing financial reporting to potential lenders such as banks, investors, and vendors who are considering how much credit to grant the firm. Thanks for listening !!!!!! ...
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This note was uploaded on 02/23/2012 for the course MGT 101 taught by Professor Staff during the Fall '10 term at Texas State.
- Fall '10