Balance Sheet Definition Examples Assets Liabilities Equity Balance Sheet Example From A Model
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When financial statements are put together the balance sheet will most commonly be the first page in the review. Within the year end statement you will also need to have the cash flow income and note statements. Once all of this is prepared you can then begin completing the balance sheet. The category you will need to work with first when completing balance sheet accounting are the assets. First you will list the current assets which will include prepaid expenses inventory cash investments of short term and receivables due. Then you will need to list the investments which will be any investments that are contracted for longer than one year. The next subtitle will be fixed assets which include equipment and property. If you have any other assets that do not fit into the previous categories you can create a subtitle for all other assets. You will then need to total all of these figures and combine them into a total. Once you list your assets you will then to create a category called liabilities. Within your current liabilities you will need to list interest due within the year income taxes and accounts payable. After this you will need to display your long term liabilities. This will be anything you are paying out longer than one year and then again total it all up.
This is the basis of balance sheet accounting. Another option in the disposition of an asset is that the asset is sold for cash and it is a wash within the assets. A simple example of balance sheet accounting is that a car is sold and therefore the automobile account is reduced by credit. However cash was received was an increase in another asset cash. Therefore the cash account would be debited and total assets would remain unchanged. This happens quite often with short-term investments and it is rarely noticed or noted. Sometimes it is helps to wrap your mind around balance sheet accounting to look at it from the stand point of a liability or the equity accounts. Say a liability is paid down or equity is purchased. This would be a debit to either of these accounts. There had to be an asset outlay for either of these events to happen probably and outlay of cash. This would be a credit to the asset account and the balance sheet would be balanced. Though this is a simplistic view it gets the point across. Since investments are considered assets they are treated the same way. Investments are listed in order from shortest term or most liquid to longest term or least liquid. They are also listed by the percentage of ownership owned. For example if an investor own fifty percent of a business that business is listed under assets and there is a denotation with it that says fifty percent or fifty percent owned or some other version of the same thing. This is so that there is full disclosure for any users of the financial statement. Thus investments have a huge impact on balance sheet accounting.For more information on investing in investment opportunities usually or
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Purpose of a Balance Sheet The balance sheet boldly declares where a business stands at a given moment in time. From the balance sheet a financially sophisticated reader can learn an immense amount of valuable information about a business and its viability. That is why potential investors and lenders will almost always ask you for a copy of your financial statements including the balance sheet income statement statement of retained earnings and statement of cash flows. This is also why you as a savvy entrepreneur need to understand the information presented on them. Why It Is Important The principal reason your business s balance sheet is so important to you and to any potential investors or lenders is that it is like a photograph of your business.