Question

What is Balance Sheet? Identify and explain any two purposes of a 'Balance Sheet'.

Answer 1

Balance sheet is a statement prepared to ascertatain the true position of assets and liabilities as on a particular date. it is prepared at the end of the accounting period, and balance sheet is a stament for a particular date. the main purpose of balancesheet is to give users and idea of the company's financial position along with displaying what the company owns and owes.

purposes of balace sheet,

*) To know the busisness net worth

net worth is defined as the true value of an entity. it shows how rich or poor it is. and the net worth can be computed by the differernce of total assets less total liabilities.In simple terms net worth is the amount the investor owns from the company after deducting all liabilities.

*) To see if the company can sustain future operation

by looking at the balance sheet you can if the company can sustain future operation. to do this look at the value of non-current assets property, plan & equipment. if the total is higher than the current assets, it means the company has plan to sustain future operations. on the other hand, if the amount is already lower than the current assets, it can be an indication of inability to sustain future operations.