What do the assets and liabilities on a balance sheet mean and how are they related...

What do the assets and liabilities on a balance sheet mean and how are they related to evaluating the financial health of a business?

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Expert Solution

Assets of a company/ any business entity ,in general, are those items that are owned by the company & quantifiable,ie. That can be attributed values.

They can be either current assets,required for or earned over, immediate operations , like cash,merchandise inventory,other supply items,investments,money owed to the business or accounts receivables, expenses prepaid.

OR fixed or long-term assets--whose benefits are felt for longer no.of years-- like plant and machinery needed for production, furniture & fixtures,land, building ,etc.

Liabilities on the other hand,are those items that are owed by the company to others & quantifiable,ie. That can be attributed values.

They can be either current liabilities ,required for or incurred over, immediate operations , like accounts payables for merchandise inventory & supplies,investments,any money owed to others in the course of running regular operations for expenses yet to be paid.

OR long-term liabilities--which are incurred for long-term funding --like bonds or notes payable.

Their relation to evaluating the financial health of a business :

While evaluating a business's balance sheet, assets & liabilities ,give an idea about the net worth of the owners--- for

Assets-Liabilities= Net worth

ie. the book value or owner’s /stockholders equity-- that is, it is the amount equal to net worth that will remain when all the assets are sold to pay off all the liabilities, in full, as on a particular date.

The more the net woth , the more financially sound, a business is.

jeff jeffy answered 2 years ago

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