Finance - Balance sheets

Finance - Balance Sheets

• What is a balance sheet used for/what does it show?
• A balance sheet helps a small-business owner quickly get a handle on the financial strength and capabilities of the business.Also, balance sheets can identify and analyze trends, particularly in the area of receivables and payables
• Balance sheets, along with income statements, are the most basic elements in providing financial reporting to potential lenders such as banks, investors, and vendors who are considering how much credit to grant the firm
• Which two figures should balance?
• The two figures that balance should be the assets and liability

Slide 2

• Current Assets
• Current assets are any assets that can be easily converted into cash within one calendar year. Examples of current assets would be checking or money market accounts, accounts receivable, and notes receivable that are due within one year's time.
• -Cash.
• Money available immediately, such as in checking accounts, is the most liquid of all short-term assets.
• -Account Receivables
• This is money owed to the business for purchases made by customers, suppliers, and other vendors.
• -Notes receivables
• That are due within one year are current assets. Notes that cannot be collected on within one year should be considered long-term assets.
• Non Current Assets
• Non current assets are company's long-term investment, in the case that the full value will not be realized within the accounting year. Non current assets are capitalized rather than expensed, meaning that the company allocates the cost of the asset over the number of years for which the asset will be in use, instead of allocating the entire cost to the accounting year in which the asset was purchased.
• Examples of non current assets include investments in another company, intangible assets such as goodwill, brand recognition and intellectual property, and property, plant and equipment. Non current assets appear on the company's balance sheet.

Slide 3

• Liabilities
• A liability is a company's legal debt or obligation that arises during the course of business operations. Liabilities are settled over time through the transfer of economic benefits including money, goods or services.
• -Accrued liabilities.
• Liabilities that have not yet been invoiced by a supplier, but which are owed as of the balance sheet date.
• -Accrued wages.
• Compensation earned but not yet paid to employees as of the balance sheet date.
• -Customer deposits.
• Payments made by customers in advance of the seller completing services or shipping goods to them. If the goods or services are not provided, the company has an obligation to return the funds.