{"id":393,"date":"2021-03-25T08:47:22","date_gmt":"2021-03-25T08:47:22","guid":{"rendered":"https:\/\/bcisnotes.com\/fourthsemester\/?p=393"},"modified":"2021-03-25T08:47:22","modified_gmt":"2021-03-25T08:47:22","slug":"balance-sheet-preparation-of-financial-statements-bcis-notes","status":"publish","type":"post","link":"https:\/\/bcisnotes.com\/fourthsemester\/balance-sheet-preparation-of-financial-statements-bcis-notes\/","title":{"rendered":"Balance Sheet || Preparation of Financial Statements || Bcis Notes"},"content":{"rendered":"

Balance Sheet<\/h2>\n

A balance sheet is a financial statement that reports a company’s assets, liabilities, and shareholders’ equity at a specific point in time, and provides a basis for computing rates of return and evaluating its capital structure. It is a financial statement that provides a snapshot of what a company owns and owes, as well as the amount invested by shareholders.<\/p>\n

The balance sheet is used alongside other important financial statements such as the income statement and statement of cash flows in conducting fundamental analysis or calculating financial ratios.<\/p>\n

Formula Used for a Balance Sheet<\/h3>\n

The balance sheet adheres to the following accounting equation, where assets on one side, and liabilities plus shareholders’ equity on the other, balance out:<\/p>\n

Assets = Liabilities + Shareholders’ Equity<\/p>\n

What’s On the Balance Sheet?<\/h3>\n

The balance sheet is a snapshot representing the state of a company’s finances at a moment in time. By itself, it cannot give a sense of the trends that are playing out over a longer period. For this reason, the balance sheet should be compared with those of previous periods. It should also be compared with those of other businesses in the same industry since different industries have unique approaches to financing.<\/p>\n

A number of ratios can be derived from the balance sheet, helping investors get a sense of how healthy a company is. These include the debt-to-equity ratio and the acid-test ratio, along with many others. The income statement and statement of cash flows also provide valuable context for assessing a company’s finances, as do any notes or addenda in an earnings report that might refer back to the balance sheet.<\/p>\n

Assets<\/h3>\n

Within the assets segment, accounts are listed from top to bottom in order of their liquidity \u2013 that is, the ease with which they can be converted into cash. They are divided into current assets, which can be converted to cash in one year or less; and non-current or long-term assets, which cannot.<\/p>\n

Here is the general order of accounts within current assets:<\/h4>\n