One of the fundamental financial statements of a business is called the balance sheet. In layman's terms, what are the different components of the balance sheet?
The nature of the balance sheet is that it is similar to a financial relate of the organization at a definite point of time (as opposed to an income statement which is over a period of time) . For example, the balance sheet can be as of December 31, 2006, or whatever is the discontinuance of the fiscal year. Balance sheets can be obvious monthly or at other intervals as well. Balance sheets maintain "permanent" information, as opposed to "temporary" information on an income statement. For example, cash is a permanent fable, that is, an ongoing fraction of the business. Revenues (sales) and expenses are temporary accounts, clear for specific fiscal years and then those accounts are closed out to the balance sheet.
The balance sheet equation is assets equal debts plus owner's equity. An asset is some type of property you need in your business. Cash, exact estate, equipment, vehicles, inventory and the like are required to speed a business. There are claims on this property: who owns what and that comprises the debt and owner's equity sections. Debt is how grand the bank (and other creditors) owns of your assets and owner's equity is how distinguished you occupy. So the colossal total of the property (assets) will equal the claims of the bank and the claims of the owner.
Now that we've defined the basic components of the balance sheet, let's notice at each portion in a exiguous more detail, starting with assets. We've given some tangible examples of what assets can be, but they can be intangible (not physical) as well. An example of an intangible asset is accounts receivable, that is, amounts your customers owe you but have not yet paid. That is an asset, because some day that cash will be realized. Another type of intangible is a prepaid expense. It may be required for you to catch out a 3-year insurance policy, paid upfront. You've already paid for this service but have not yet received the aid of insurance coverage for the entire three-year period and in the meantime that is considered an asset.
Debts are also known as liabilities. In addition to owing money to banks, your business could occupy money to suppliers. This is called accounts payable. A more formalized statement of something owed is called notes payable. Money owed on a mortgage is called mortgage payable. Payables that are due within one year are called unique payables; payables that are due longer than one year are called long-term payables.
Owner's equity (or capital) can be explained in terms of your home mortgage. Your house is the asset and how grand you owe the bank is the liability. What is left is the owner's equity. This logic can be applied to your assets in total; subtract what is owed to the bank and the result is owner's equity. There are different types of owners, depending on business types. A sole proprietorship is a single owner, as contrasted with a partnership where there is more than one owner. If a business is incorporated, this part is referred to as stockholder's equity and celebrated stock will be keen.
In summary we've looked at the balance sheet complete with the goods a business has (the assets) . Claims by others on those goods are considered to be liabilities and the secure result is owner's equity. That is why the balance sheet balances. Assets equal liabilities plus owner's equity.
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