Once you have people on your money, And you owne others money, You can create assets,liability...

Once you have people on your money, And you owne others money, You can create assets,liability and equity accounts. How can having a balance sheet be of value to you?

Expert Solution

* When you have people on you rmoney, it means they owe you some amount and are called 'Accounts receivables'. These are your 'Assets' (particularly classified as 'current assets')

*When you own some money to others, it is your responsibility to pay them back. You are liable to pay them that amount. These people will be "Accounts payable" was for and classified as "Liabilities".

* Balance Sheet generally has three broad sections: (1) Assets (2) Equity and (3) Liabilities. Its called Balance Sheet, because it is based on balanced accounting equation which is Assets = Liabilities + Equity.

* Hence, when you have people on you rmoney and you owe others money, you can create Balance SHeet with Assets and Liabilities amount.

* Having a Balance Sheet can be of value to you as:

>You can be informed about your financial liability,
>You can know how much asset resources you have to pay off those liabilities,
>Also you can be aware of equities amount which include capital contribution and Net Income.
>Financial decision can be taken on the basis of amount of Assets and Liabilities.
>You can easily perform ratio analysis of various ratios like current ratio, debt to equity ratio, etc.

ekkarill92 answered 2 years ago

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