Purchase Solution

describe the balance sheet and its importance

Not what you're looking for?

Ask Custom Question

Please describe what the balance sheet is.
a. How is it constructed/what kinds of items are included?
b. Why is it important?
c. How does it relate to the other two financial statements?

Purchase this Solution
Solution Preview

Hi there,

Here are your answers:

The balance sheet is a statement of your company's relative wealth or financial position at a given point in time. It's often referred to as a "snapshot" because it gives you a fairly clear picture of the business at that moment, but does not in itself reveal how the business arrived there or where it's going next. That's one reason why the balance sheet is not the whole story - you must also look at the information from each of the other financial statements (and at historical information as well) to get the most benefit from the data.

Along with other financial information, balance sheet data is frequently analyzed and put into perspective through the construction of business and financial ratios. In many cases, ratios are constructed for each balance sheet (and income statement) for a number of years, so that you can make comparisons and spot important trends.

The balance sheet consists of three categories of items: assets, liabilities, and stockholders' or owners' equity.

Assets. Assets are generally divided into two groups - current assets and fixed (long-term) assets. They are usually presented in order of liquidity, with current assets (cash and those that will be converted to cash within one year) appearing first. For instance, current assets would ...

Purchase this Solution
Free BrainMass Quizzes
Introduction to Finance

This quiz test introductory finance topics.

Motivation

This tests some key elements of major motivation theories.

Marketing Research and Forecasting

The following quiz will assess your ability to identify steps in the marketing research process. Understanding this information will provide fundamental knowledge related to marketing research.

Business Ethics Awareness Strategy

This quiz is designed to assess your current ability for determining the characteristics of ethical behavior. It is essential that leaders, managers, and employees are able to distinguish between positive and negative ethical behavior. The quicker you assess a person's ethical tendency, the awareness empowers you to develop a strategy on how to interact with them.

Balance Sheet

The Fundamental Classified Balance Sheet. What to know to make it easy.

View More Free Quizzes
Related BrainMass Solutions

  • Limitation of ratios; five-question approach; limitation of financial statements

    A company's financial statements consist of the balance sheet, income statement, and statement of cash flows. Describe what each statement tells us and their limitations. 2. What is the purpose and importance of financial analysis?

  • Conservatism and Matching Principles in Financial Accounting

    (b) Give specific examples of how the matching concept is used in practice. (c) Describe and discuss the balance sheet approach and its importance to income reporting.

  • The importance of corporate valuation in the M&A process

    What is the value of goodwill that must be shown on the balance sheet of the combined companies? Corporate valuation is an important step in the M&A process.

  • List and describe two internal financial statements that may

    460656 List and describe two internal financial statements that may List and describe two internal financial statements that may be used at a non-profit organization. What is the importance of each one?

  • Accounting

    When inventory is purchased, it will show up as inventory in the balance sheet and accounts payable in the balance sheet if it is not paid for. When it is paid, cash and accounts payable will change in the balance sheet.

  • Multiple choice

    ) which of the following accounts will appear in the balance sheet credit column?

  • Accounting:Describing the balance sheet and income statement

    272518 Accounting:Describing the balance sheet and income statement Describe each of the two financial statements - Balance Sheet & Income Statement - and explain the financial information each contains.

  • Effect of a change in Required Reserves on a bank's balance sheet

    Using the initial balance sheet above, answer questions 1-4 again. Show what the revised balance sheet would look like and describe all changes that will occur as a result of the change in reserve requirement.

  • Finance Questions

    The question requires you to answer the importance of off balance sheet financing, EBIT/EPS analysis and the importance and benefits of going public/ remaining private.

    There are some assumptions, which the question makes.

  • Define each part of a financial plan

    Balance sheet is the statement which provides the information about the financial position of the company on a particular date by revealing the information regarding its assets, liabilities and owners' equity.

View More Related Solutions