Financial Statements- Understand The Balance Sheet

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You might already know that a balance sheet is a snapshot of the financial condition of a company at any given time. It is usually drawn up at the end of the fiscal year, though some companies may choose to draft one quarterly. These reports are composed in one of two types. Generally,the basic formula for a Balance Sheet is Assets = Liabilities + Shareholders or owner Equity

1. Report form
a) Assets
Assets are properties owned by the company.List of the assets do represent the majority of the company’s worth.

There are 3 kind of assets:

i) Fixed assets
The value of the Fixed Assets of the companies and owner are most often listed at their purchase price, less depreciation, where applicable.These assets are used by the company to produce, store, display and transport its goods and services.
Please remember that depreciation is an accountant technique to spread the item over expected usual life.

ii) Current Assets
Current Assets are the most liquid assets . These assets can include:
* Cash
* Shares and Bonds: these are short-term investments that will be held in one year or less.2.
* Accounts and Notes Receivable: the contracts are simply written guarantees to pay within a short time period.
* Inventory: this consists of goods on hand, waiting for sale to customers.
* Prepaid Expenses: includes prepaid services or materials and supplies.

iii) Other assets:
Other Assets cover a wide variety of anything that can not converts to cash within one year. It includes:
* Cash values of life insurance policies.
* Intangible assets including leases, patents, copyrights, trademarks and goodwill, etc.
* Investments and investments in other companies.
* Prepaid expenses or deferred charges in excess of one year.

2. Liabilities
a) current value owed:

Liabilities represent debt which must be paid sometime in future that include:
i) Accounts Payable: amounts owed to other companies.
ii) Notes Payable: amounts owed to a bank or other lender.
iii) Accrued Expenses Payable: amounts owing, but not due.

b) Long term liability
Long term liability that debt will be due over one years from the date of balance sheet.

3. Share holder equities
Share holder equities is permanent capital invested and represented by capital stokes and is evident by shareholder certificates.

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