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Meaning of Balance Sheet - ClassNotes.ng

Meaning of Balance Sheet

Welcome to today’s class!!

We are thrilled to have you in our class!!

In today’s Store Management class, we will be learning about Meaning of Balance Sheet

Meaning of Balance Sheet

meaning of balance sheet

The term balance sheet refers to a financial statement that reports a company’s assets, liabilities, and shareholder equity at a specific point in time. 

Balance sheets provide the basis for computing rates of return for investors and evaluating a company’s capital structure.

Balance Sheet is now being referred to as, Statement of Financial Position.

In short, the balance sheet is a financial statement that provides a snapshot of what a company owns and owes, as well as the amount invested by shareholders. Balance sheets can be used with other important financial statements to conduct fundamental analysis or calculate financial ratios.

bal sheet

Investors can get a sense of a company’s financial well-being by using a number of ratios that can be derived from a balance sheet, including 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.

A balance sheet serves as reference documents for investors and other stakeholders to get an idea of the financial health of an organization. It enables them to compare current assets and liabilities to determine the business’s liquidity, or calculate the rate at which the company generates returns. Comparing two or more balance sheets from different points in time can also show how a business has grown.

If a company takes out a five-year, N4,000 loan from a bank, its assets (specifically, the cash account) will increase by N4,000. Its liabilities (specifically, the long-term debt account) will also increase by N4,000, balancing the two sides of the equation. If the company takes N8,000 from investors, its assets will increase by that amount, as will its shareholder equity. All revenues the company generates in excess of its expenses will go into the shareholder equity account. These revenues will be balanced on the assets side, appearing as cash, investments, inventory, or other assets.

In summary, a balance sheet is a financial statement that contains details of a company’s assets or liabilities at a specific point in time. It is one of the three core financial statements (income statement and cash flow statement being the other two) used for evaluating the performance of a business.

 

Evaluation

What is a Balance Sheet?

 

Reading Assignment

Explain the purpose of a Balance Sheet.

 

Weekend Assignment

Give two users of a Financial Statement.

 

We hope you enjoyed today’s class. In our next class, we will be talking about How To Post Items Into a Balance Sheet.

Let us know your thoughts and questions in the comment section, and we will attend to them as fast as we can.

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