Business
Balance Sheet
A balance sheet is a financial statement that provides a snapshot of a company's financial position at a specific point in time. It presents the company's assets, liabilities, and shareholders' equity, showing the balance between what the company owns and what it owes. This information is crucial for assessing the company's solvency and financial health.
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11 Key excerpts on "Balance Sheet"
- Lea R. Dopson, David K. Hayes(Authors)
- 2016(Publication Date)
- Wiley(Publisher)
113 The Balance Sheet CHAPTER 4 Overview In this chapter, you will learn about the Balance Sheet, an extremely important financial document. As a hospitality manager, the ability to read and understand a Balance Sheet is second in importance only to that of the income statement. As you have learned, the income statement provides a summary of a business’s operational results over a defined period of time (e.g., a month or a year), while the Balance Sheet reflects the overall financial condition of a business on the specific day it is prepared. Thus, it can be considered a point‐in‐time “snapshot” of a business’s financial standing and value. In Chapter 2, you also learned that the accounting equation has three distinct components and is stated as Assets = Liabilities + Owners’ equity. The purpose of a Balance Sheet is to tell its readers as much as possible about each of these three accounting equation components. As a result, it provides readers with great detail about the precise nature and condition of a business’s assets, liabilities, and owners’ equity. In this chapter, you will learn why owners, investors, lenders, and managers all must know how to read and understand a Balance Sheet. You will also learn how accountants prepare a Balance Sheet and, most importantly of all, how managerial accountants evaluate the information contained in a Balance Sheet using vertical and horizontal analysis techniques. The Purpose of a Balance Sheet Learning Outcome 1: State the purpose of regularly preparing a Balance Sheet for a hospitality business. Business owners prepare Balance Sheets to better understand the value of a busi- ness and how well its assets have been utilized to produce wealth for the business’s owners. CHAPTER OUTLINE 1 The Purpose of a Balance Sheet 2 Balance Sheet Formats 3 Components of the Balance Sheet 4 Balance Sheet Analysis 5 Apply What You Have Learned 6 Key Terms and Concepts 7 Test Your Skills
eBook - PDF- Henry E. Riggs(Author)
- 2022(Publication Date)
- Springer(Publisher)
1 C H A P T E R 1 The Balance Sheet Position not Performance The two fundamental documents that present the financial score are the Balance Sheet and the income statement—the first discussed in this chapter and the second in Chapter 2. They are the primary products of the accounting system. In a sense the Balance Sheet is the more “fundamental” of the two because, as we shall see, it would be possible, though quite undesirable, to operate an accounting system with solely a Balance Sheet. THE FUNDAMENTAL ACCOUNTING EQUATION The form of the Balance Sheet is Assets = Liabilities + Owners’ Equity. Think of assets, the left-hand side of the equation, as including everything the corporation owns, both physical things such as machinery, inventory and cash, and intangible things such as patents and trademarks. The right-hand side is everything the corporation owes. Thus, the equation can be translated into Owns = Owes. The Owes side needs a little more explanation. Surely the company owes its liabilities, whether the amounts are owed to suppliers (goods and services bought on credit), to banks (loans), to taxing agencies for taxes not yet paid, or to employees for wages and salaries earned but not yet paid to them. But Owners’ Equity is another matter. Consider a simple algebraic rearranging of the Balance Sheet equation: Assets- Liabilities = Owners’ Equity. Now it becomes clear why Owners’ Equity is very often referred to as Net Worth—the difference between assets and liabilities is one measure of the “worth” of the corporation to its shareholders. Indeed, for the corporate form of business (as distinct from partnerships and sole proprietorships), owners’ equity is properly referred to as Shareholders’ Equity. But you and I know that corporations do not “owe” their shareholders in the same sense that they owe their creditors.
eBook - PDF- David W. O'Bryan(Author)
- 2006(Publication Date)
- Information Age Publishing(Publisher)
In fact, this is one of the primary benefits of financial statements. If you are thinking about buying stock in Wal-Mart, or if a bank were thinking about lending them money, you probably don’t need to review every single cash register transaction. You do need to know whether they are making money from their day-to-day operations, whether they can repay their debts, or whether they can pay their day-to-day costs as they come due. There are three, primary financial statements. The remainder of this chapter will introduce these financial statements and the related concepts that accompany each statement. THE Balance Sheet The very name of this statement implies that something “balances”, that something equals something else. Let’s cut to the chase and look at the fundamental equation underlying the Balance Sheet: This equation underlies much of what we will do in Financial Account-ing. You should memorize it now. Please note that this is merely an alge-bra equation stating that the term on the left, Assets, must always equal the summation of the terms on the right, Liabilities and Equity. Like any algebra equation this can also be rewritten as follows: The Accounting Equation: Assets = Liabilities + Equity The Accounting Equation − Alternative Forms: Assets − Liabilities = Equity or Assets − Equity = Liabilities Financial Accounting: A Course for All Majors 7 Now, let’s examine each element of the Balance Sheet in more detail. Assets Most people have an intuitive understanding of this term. Assets are things with future, economic benefits. That’s a fancy way of saying they are things with value. Examples of assets include cash, vehicles, houses, land, and the computer I’m using to prepare this chapter. Liabilities Most people have an even better understanding of this term! Liabilities are amounts we owe, or debts. Examples of liabilities include student loans, credit card debt, and car loans.
eBook - ePub- Steven Collings(Author)
- 2016(Publication Date)
- Wiley(Publisher)
5 Statement of Financial Position (Balance Sheet)- Introduction
- Formats Permitted by the Companies Act 2006
- Presentation of Assets
- Net Current Assets and Liabilities
- Liabilities
- Share Capital and Reserves
- Off-Balance Sheet Arrangements
- Micro-Entities
- Abridged and Adapted Balance Sheets
- IAS 1 Presentation of Financial Statements Requirements
- Key Points
Introduction
The statement of financial position (Balance Sheet) shows the financial position of a reporting entity as at the end of a reporting period. The end of a ‘reporting period’ is not necessarily confined to the year-end; it can be at any point in time, such as at the end of the month, quarter or half-year. The aim of the Balance Sheet is to provide a ‘snapshot’ of the entity's financial position at the reporting date which shows the assets under the control of the entity and the liabilities the entity is obliged to meet. Parents of groups are required to prepare a consolidated Balance Sheet if the group is not able to claim exemption from preparing consolidated financial statements (i.e. because the company is a small group). Group reporting is examined in more detail in Chapter 24 .FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland deals with the Balance Sheet in Section 4 Statement of Financial Position
eBook - PDFFinancial Accounting Theory and Analysis
Text and Cases
- Richard G. Schroeder, Myrtle W. Clark, Jack M. Cathey(Authors)
- 2022(Publication Date)
- Wiley(Publisher)
This review reveals that no single measurement basis is used for all the elements; rather, a variety of measurement approaches are currently acceptable, depending on the circumstances and available information. Balance Sheet Elements Statement of Financial Accounting Concepts No. 8 Chapter 4 defines the elements of the Balance Sheet as follows: Assets An asset is a present right of an entity to an economic benefit that has two essential characteristics: 1. It is a present right. 2. The right is to an economic benefit. Liabilities A liability is a present obligation of an entity to transfer an economic benefit. That has two essential characteristics: 1. It is a present obligation. 2. The obligation requires an entity to transfer or otherwise provide economic benefits to others. 1 Stephen A. Zeff, “The SEC Rules Historical Cost Accounting: 1934 to the 1970s,” Accounting & Business Research (2007 Special Issue): 49–62. 249 The Balance Sheet Equity Equity is the residual interest in the assets of an entity that remains after deducting its liabilities. In a business enterprise, the equity is the ownership interest. Equity in a business enterprise stems from ownership rights (or the equivalent). It involves a relation between an enterprise and its owners as owners rather than as employees, suppliers, customers, lenders, or in some other non- owner role. Consequently, equity is also impacted by transactions with owners. These transac- tions were also defined in SFAC No 8, Chapter 4 as investments by owners – increases in equity of an entity resulting from transfers to the entity from other entities of something valuable to obtain or increase ownership interests (or equity) in the entity and distributions to owners – decreases in equity of an entity resulting from transferring assets, rendering services, or incurring liabilities by the entity to owners. Distributions to owners decrease ownership interest (or equity) in an entity.
eBook - PDF- Raymond S. Schmidgall, David K. Hayes, Jack D. Ninemeier(Authors)
- 2003(Publication Date)
- Wiley(Publisher)
The bal- ance sheet and the income statement are the best known and, to many users, the most useful of the financial statements. This chapter addresses the purposes and content of the Balance Sheet and presents a format recommended by the Uniform System of Accounts for Restaurants. General footnotes to financial statements are also discussed. PURPOSES OF Balance Sheet The Balance Sheet, also known as the statement of fi- nancial position, reports the assets, liabilities, and net worth of the restaurant at a single point in time (gen- erally month-end). It provides a static snapshot of the restaurant’s financial position. If a second Balance Sheet were prepared for the operation even one day after the end of the accounting period, it would prob- ably reflect a different “picture” of assets, liabilities, and net worth than did its counterpart prepared one day earlier. Financial information from the Balance Sheet is used by different users for different reasons. It has several important purposes, including the following: ■ It tells the amount of cash on hand at the end of an accounting period. All assets are eventually converted, either directly or indirectly, to cash. This process may result in a partial loss (such as uncollected accounts receivable). Alternatively, several months (or even years) may evolve be- Balance Sheet Also known as the statement of financial position, this final output from the accounting cycle re- ports the assets, liabilities, and net worth of the restau- rant at a single point in time (generally month-end). fore an asset such as a dishwasher is fully used. (It is converted to an ex- pense through a depreciation process.) Cash on hand is cash available for alternative future uses such as paying bills and disbursing to owners. ■ It explains details about assets. Fixed assets rep- resent a fairly high percentage of the total assets of many restaurants. Several years are required to fully use these assets in the business.
eBook - PDF- Harold Bierman, Jr(Authors)
- 2010(Publication Date)
- World Scientific(Publisher)
It has the disadvantage of not explicitly showing the total assets or total liabilities. An Introduction to Financial Reporting 41 These totals can be derived from the Balance Sheet regardless of the format, but they are more difficult to find when the step presentation is used. An example of a Balance Sheet using this format is also shown below. Sample Company Balance Sheet as of December 31, 20XX Assets Current Assets Cash on Hand $ 2,000 Cash in Bank 30,000 Marketable Securities 8,000 Accounts Receivable 60,000 Inventories 50,000 Prepaid Expenses 2,000 Total Current Assets $152,000 Long-Lived Assets Land $ 15,000 Buildings 53,000 Equipment 60,000 Total Long-Lived Assets 128,000 Total Assets $280,000 Liabilities and Stockholders’ Equity Current Liabilities Accounts Payable $30,000 Taxes Payable 70,000 Total Current Liabilities $100,000 Long-Term Liabilities Bonds Payable 80,000 Total Liabilities $180,000 Stockholders’ Equity Common Stock $ 90,000 Retained Earnings 10,000 Total Stockholders’ Equity 100,000 Total Liabilities and Stockholders’ Equity $280,000 42 An Introduction to Accounting and Managerial Finance Sample Company Balance Sheet as of December 31, 20XX Current Assets Cash on Hand $ 2,000 Cash in Bank 30,000 Marketable Securities 8,000 Accounts Receivable 60,000 Inventories 50,000 Prepaid Expenses 2,000 $152,000 Deduct: Current Liabilities Accounts Payable $ 30,000 Taxes Payable 70,000 $100,000 Net Current Assets $ 52,000 Noncurrent Assets Land $ 15,000 Buildings 53,000 Equipment 60,000 Total Assets less Current Liabilities $180,000 Deduct: Long-Term Debt Bonds Payable $ 80,000 Net Assets $100,000 Ownership Common Stock $ 90,000 Retained Earnings 10,000 $100,000 Managerial Uses of the Balance Sheet The primary function of a Balance Sheet is to indicate the financial position of an organization. The statement may provide useful information in determining the degree of financial risk.
eBook - ePub- Pru Marriott, J R Edwards, Howard J Mellett(Authors)
- 2002(Publication Date)
- SAGE Publications Ltd(Publisher)
In all cases readers should work through the question and only then compare their answer with the solution provided in the Appendix at the end of the book. (Only the odd-numbered solutions are given in the Appendix – as are solutions 6.2, 6.4 and 6.6; all other even-numbered solutions are to be found in the Solutions Manual located at: www.sagepub.co.uk/resources/marriott.htm.) CLASSIFICATION OF ASSETS AND SOURCES OF FINANCE The Balance Sheet can be described as a ‘position’ statement that shows the financial position of a business at a particular point in time. It consists of assets, liabilities and capital. Assets Business assets may be defined as resources owned by an entity that have the potential for providing it with future economic benefits in the sense that they help to generate future cash inflows or reduce future cash outflows. The fact that a business asset exists, however, does not necessarily mean that it will be reported in the Balance Sheet. For this to be done, the asset must satisfy the further requirement that the benefit it provides can be measured or quantified, in money terms, with a reasonable degree of precision. This is referred to as the money measurement concept. For example, stock-in-trade is reported as a business asset because it is owned by the firm, it has an identifiable monetary value (its cost) and it is expected to produce an at least equivalent cash benefit to the firm when it is sold. Expenditure incurred on training staff, on the other hand, presents a more difficult problem. While it is possible to identify the amount of the expenditure, it is not possible to forecast with a high degree of certainty whether the firm will benefit from the expenditure. Employees may be poorly motivated and fail to improve their competence as the result of attending training courses. In addition, they may leave the firm and take their new expertise elsewhere
eBook - PDFFinancial Accounting Theory and Analysis
Text and Cases
- Richard G. Schroeder, Myrtle W. Clark, Jack M. Cathey(Authors)
- 2020(Publication Date)
- Wiley(Publisher)
Evaluation of a company’s financial position is an important factor in satisfying the needs of creditors, stockholders, management, the government, and other interested parties. Management attempts to satisfy these needs by presenting information on the company’s resources, obligations, and equities at periodic intervals. In this chapter we describe the Balance Sheet and the measurement techniques currently used to disclose assets, liabilities, and equity; illustrate the disclosure of financial statement ele- ments on the Balance Sheets of Hershey and Tootsie Roll; and discuss how to evaluate a compa- ny’s financial position. In so doing, we do not presume that current stock measurement techniques provide enough relevant information to the users of financial statements. Rather, we believe a thorough examination of these techniques will disclose their inherent limitations. Later in the chapter, we discuss the evolution of the third major financial statement from the statement of changes in financial position to the statement of cash flows, illustrate the disclosure of cash‐flow information on Hershey’s and Tootsie Roll’s statements of cash flows, and discuss how investors can use this information to evaluate a company’s performance. The Balance Sheet should disclose a company’s wealth at a point in time. Wealth is defined as the present value of all resources less the present value of all obligations. Although the use of present‐value measurements in accounting is increasing, it is not used extensively for all assets and liabilities. As a result, a variety of methods are currently being used to measure changes in the individual components of the elements of the Balance Sheet. These measurements can be summarized as past oriented—historical; current oriented—replacement amounts; and future oriented—expected amounts. THE Balance Sheet
- Roger Hussey(Author)
- 2010(Publication Date)
- WSPC(Publisher)
4 The Basics of the Statement of Financial Position Learning Objectives At the completion of this chapter you should be able to: Explain the accounting equation Identify the structure and contents of a simple Statement of Financial Position Differentiate between current and non-current assets Calculate annual and cumulative depreciation Explain the main requirements of IAS 16 Property, Plant and Equipment Apply IAS 23 Borrowing Costs in given circumstances. 4.1 Introduction In the previous chapter we examined the Statement of Income and how this helps users understand the financial performance of a company over a period of time. However, this is not the only aspect of the “financial health” of the business that is of interest. When users are investigating a business they will want to know what is its “financial strength”. Sometimes people will refer to what the business owns and what it owes , although this is not really an accurate description. 85 Information on the financial strength of the business is contained in the Statement of Financial Position, frequently known as the Balance Sheet. It provides financial information of the business at a specific point of time, that is, the end of the financial period. The Balance Sheet can be imagined as a snapshot or photograph of the business as it captures the financial position of the business on the last day of the financial period. Of course there are connections between the Income Statement, Statement of Cash Flow and the Statement of Financial Position. We will look at these more closely in subsequent chapters. In this chapter we will examine the basis and main contents of the Statement of Financial Position. We will also look at IAS 1 Presentation of Financial Statements so that we understand how the information is communicated. 4.2 The Accounting Equation The basis of the Statement of Financial Position is the accounting equation.
- Donald E. Kieso, Jerry J. Weygandt, Terry D. Warfield(Authors)
- 2019(Publication Date)
- Wiley(Publisher)
Owners’ Equity The owners’ (stockholders’) equity section of the Balance Sheet includes information related to capital stock, additional paid-in capital, retained earnings, accumulated other comprehensive income, treasury stock, and noncontrolling interest. Prepa- ration of the owners’ equity section should be approached with caution because of the various restrictions imposed by state corporation laws, liability agreements, and voluntary actions of the board of directors. LO 2: Prepare a classified Balance Sheet. Balance Sheet Format The account format of a classified Balance Sheet lists assets by sections on the left side and liabilities and stockholders’ equity by sections on the right side. The report format lists liabilities and stockholders’ equity directly below assets on the same page. LO 3: Explain the purpose, content, and presentation of the statement of cash flows. Statement of Cash Flows The primary purpose of a statement of cash flows is to provide relevant information about the cash receipts and cash payments of an enterprise during a period. The Balance Sheet, income statement, and retained earnings statement do not provide a convenient source of information on cash flows. Thus, in an attempt to provide a vehicle to help achieve this objective, the Financial Accounting Standards Board requires the presentation of the Statement of Cash Flows as a basic financial statement. In accomplishing its purpose, the statement focuses attention on three different activities related to cash flows. a. Operating activities involve the cash effects of transactions that enter into determination of net income. b. Investing activities include making and collecting loans and acquiring and disposing of debt and equity investments and property, plant, and equipment.
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