Question

After exploring the three big financial statements, the Balance Sheet, Income Statement and Statement of Cash Flows, identify the one you think you will use the most and defining the statement and explaining the information that statement contains and how you will use it in a workplace.

Answer 1

Balance sheet refers to the type of statement which represents the company’s financial position for specific time period. A balance sheet of the company is divided into three segments that are Liabilities, Assets and shareholder’s Equity. Balance sheet refers to the statement of finance which summarize the shareholders equity, liabilities and assets of the company at particular time. Balance sheet helps the user to identify the amount which is being invested by shareholder, the assets owes and owned by the company.

Balance sheet generally reflects two side viz. Liabilities and equity of shareholder and assets on the other. A company is required to make payment of all the assets owned by it either by taking the funds from investor or by borrowing the same.

For instance- if a loan is taken by the company for a period of 5 years then its liabilities will increase by an amount of $4,000 in the name of loans and the cash will be increased by $4,000 in the assets side of the balance sheet.

Assets generally comprises of long term assets and current assets. Long term assets generally comprises of intangible assets, fixed assets and long term investment. Current asset on the other hand comprises of prepaid expenses, inventory, accounts receivable, marketable securities, cash and cash equivalents.

In a similar arrangement, liabilities comprises of long term liabilities and current liabilities. The long term liabilities usually comprises of deferred tax liability, long term debt. Current liabilities on the other hand includes dividend payables, customer prepayments, wages payable, utilities, tax and rent, interest payable and bank indebtedness.