Balance Sheet Essay

Balance Sheet

A balance sheet is also referred to as a statement of financial position. The balance sheet gives a summary of the company’s liabilities, assets, and the shareholders’ equity at a given time. The balance sheet is usually made at the end of a financial year and it is the only statement among the three basic financial statements that applies at one point in the calendar year of a business. The balance sheet is usually written systematically. As stated earlier, it has three parts and the first part of the balance sheet is the assets. The assets are listed in order of liquidity from most liquid to least liquid. The assets are then followed by the liabilities. The difference between total assets and total liabilities gives the net assets, i.e. the net worth of a company. This is according to the equation of accounting where net worth must be equal to assets less liabilities.

The balance sheet may also be looked at from a different dimension. The total assets in a balance sheet should be equal to the owners equity added to the liabilities. Doing this reflects how the assets were financed, i.e. either through owner’s equity or through borrowing money (liabilities). The assets are usually laid on one section while the liabilities and the net worth (capital) are put on the other section if the balancing is a two section balancing. As such, a balance sheet is used for the sole purpose of financial analyzation and reporting as part of the financial statements suite.

Income Statement

An income statement refers to a document that is produced on a monthly basis or annually. It gives a report on a company’s earnings by showing all the incomes earned by the company as well as all the expenses that the company incurs in the generat...

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...ually termed as the book value of the company and it is gotten from two sources that are considered main. The first source, i.e. the original source is the funds that were initially invested in the company, inclusive of any additional investments made afterwards. The second source is the retained earnings that the company can accumulate as time goes by via its operations. After looking at what stockholders equity is, we would look at its different components, or what it is made of. The shareholders equity is inclusive of:

1. Preferred stock-this refers to the investment made by preferred stockholders. They have priority over the common shareholders and they accrue a dividend that is prioritized over any distribution made to common shareholders. It is recorded at par value.

2. Common stock-is the investment made by stockholders. It is valued at the stated value.