Balance Sheet

In our previous lecture, we also discussed about preparing the balance sheet for merchandising business. Sir Randy discussed what a balance sheet is and how to prepare this document.

According to Debitoor (n.d.), a balance sheet is a financial statement that reflects what a business is worth at a specific accounting period. It provides the financial position of a company. It also provides the summary of the business’ assets, liabilities and owner’s equity which adheres the formula: Assets = Liabilities + Owner’s Equity. These sections gives an idea on what the business owns and owes as well as the amount of investment (Investopedia, n.d.). It is also called as the statement of financial position (Averkamp, n.d.).

As what was stated, balance sheet shows the financial position of a business. It is showed through outlining the amount of assets, liabilities and owner’s equity the business has. Assets are divided into two sections: current assets and properties and equipment. Current assets include cash, receivables, supplies unused, merchandise inventory ending, and prepaids. Under properties and equipment, furniture and fixtures and equipment are included. Liabilities are also divided into two segments: current and non-current liabilities. Current liabilities include payables, accruals, and unearned sales while non-current liabilities contain mortgage, loan and bonds payable. Under owner’s equity, it contains the capital and drawing of the owner and also the net income or loss coming from the income statement. This will provide an idea to other people what the business owns and owes.

Balance sheet is prepared by following the formula wherein assets must be equal to the sum of liabilities and owner’s equity. Total assets can be acquired by adding the total current assets and total properties and equipment. Total liabilities can be attained by adding the total current and non-current liabilities. Owner’s equity is the sum or difference of net capital (from subtracting the owner’s capital and drawing) and net income/loss. Total assets must be equal to total liabilities and owner’s equity. An example of balance sheet is:

Image source: http://aics.acadiau.ca/case_studies/headshoppe_files/image74.gif

For more inquiries about balance sheet, you can also visit these sites:

This site also came from the same source as what was presented in my income statement blog. It provides a detailed explanation about balance sheets and its components. (URL source: http://www.accountingcoach.com/balance-sheet/explanation

This site also came from the same source as what was presented in my income statement blog. It provides a detailed explanation about balance sheets and its components. (URL source: https://www.thebalance.com/balance-sheet-definition-2946947)

This video also elaborates information about the components of the balance sheet. It also gives the purpose of this financial statement. (URL source: http://study.com/academy/lesson/the-balance-sheet-purpose-components-format.html)

This video presents a short introduction of balance sheet. It also shows a brief example as to what happens and what is recorded in the balance sheet. (URL source: http://www.investopedia.com/video/play/introduction-balance-sheet/)

To wrap it up, balance sheet is also one of the financial statements, along with income statement prepared by business owners. This document mirrors the financial position of the business and what the business owns and owes over a specific accounting period which can be monthly, quarterly, semi-annually or annually. The financial position of the business is evaluated by summarizing the total assets a business owns, the amount it owes to lenders or banks and the amount of its equity (Debitoor, n.d.). It must follow the formula Assets = Liabilities + Owner’s Equity.

In this session, I learned what a balance sheet is, how to prepare it and why it was prepared. Preparing a balance sheet for service and merchandise business are just the same. It’s just that merchandise inventory ending was added. This is the reason why I didn’t encounter any problems in preparing this document. I also realized that this document really provides an idea on what the business owns and owes since assets reflects what the business owns, liabilities reflects what the business owes and owner’s equity reflects the amount invested on the business. Thus, it is significant that we know what’s in the balance sheet because it will provide the financial position of the business to other people and I think it must be really accurate so that potential investors can really see if they would invest or not on the business.

References:

Averkamp, H. (n.d.). Balance Sheet (Explanation). Retrieved 3 March 2017 from http://www.accountingcoach.com/balance-sheet/explanation

Debitoor. (n.d.). Balance Sheet - What is a balance sheet? Retrieved 3 March 2017 from https://debitoor.com/dictionary/balance-sheet

Investopedia. (n.d.). Balance Sheet. Retrieved 3 March 2017 from http://www.investopedia.com/terms/b/balancesheet.asp