Know The Key Essentials Of a Balance Sheet

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Know The Key Essentials of A Balance Sheet
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Contents

1. Introduction
2. Financial Analysis
3. Applying for A Loan
4. Checking Financial Records
5. What are Assets in a Balance Sheet
6. What Are Liabilities in a Balance Sheet
7. How does a Balance Sheet Work

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Introduction

• A balance sheet is an accurate description of the
  financial health of a company on a particular
  date. A balance sheet is usually created at the
  end of a year or quarter.
• The balance sheet summarizes the financial
  aspects like assets and liabilities. It shows how
  much money is owed to creditors and how much
  money do creditors owe to the business.

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Financial Analysis

• A balance sheet is used for the complete analysis
  of the business finances.
• It is used to understand where the business is
  headed and how can the problem, areas be
  rectified.

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Applying For A Loan

• Every business looking for a loan from a
  financial institution or a bank has to furnish
  its balance sheet, in order to be eligible for
  the loan.
• This is used by the financial institution to
  gauge the financial health of the company.

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Checking Financial Records

• Every business records all transactions in the
  business, in the books of accounts. These
  transactions are verified with the help of the
  Balance Sheet.

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What are Assets in A Balance Sheet

• Any resources of value that are owned by a
  company are called assets. Any land, buildings,
  equipment and accounts receivables that are owned
  by a company are counted as its assets. Assets
  can be classified into liquid assets and fixed
  assets.
• Assets, that can be converted to cash in the
  short run are called liquid assets the once
  like land and buildings that cannot be converted
  to cash in the short run are called fixed assets.

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What are Liabilities in A Balance Sheet

• Liabilities are what the business has to pay for
  in the features. These are obligations such as
  accounts payable and owners equity. Liabilities
  can be classified into short term and long term
  liabilities. Short term obligations like accounts
  payables come under short term liabilities.
• On the other hand, long term liabilities are ones
  that have to be paid for after at-least one year.
  Long term loans can be categorized under long
  term liabilities.

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The Working of a Balance Sheet

• The following equation depicts the working of a
  balance sheet
• Assets Liabilities Shareholders Equity
• The balance sheet of a company also gives an
  overview of the growth and operational efficiency
  of a business. A good balance of a business
  having positive state of finances, is an
  incentive for investors to invest in the
  business.

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