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Balance Sheet Homework Help

Balance Sheet Assignment Assignment / Homework Help
A balance sheet, also referred to as Statement of Financial Position, is a statement that exhibits the assets and liabilities of a business enterprise prepared at a particular date. Since even a single transaction will make a difference to some of the assets or liabilities, the balance sheet is true only at a particular point in time. This is the significance of the word “as at”. At end of each accounting period, every business enterprise prepares a balance sheet to have a clear understanding of its assets and liabilities, which indicate the financial position of the concern. It depicts the financial position of an enterprise in a snapshot.

Balance sheet is prepared from the point of view of the business (as a separate entity, distinguished from its owners). Another way to understand the balance sheet is to consider it as a statement of sources of funds (i,e liabilities) and utilization of funds (i,e assets). Of all the elements of financial statements, balance sheet is the only element that is prepared as at a particular date as opposed to a particular period. A balance sheet comprises of three parts viz. Assets, Liabilities and Owner’s Equity.

The three main characteristics of a balance sheet are:
  • It is prepared at a particular date and not for a period
  • The balance sheet is always prepared after the income statement
  • Since capital always equals the difference between assets and liabilities, the two sides of the balance sheet must have same totals. If it is not so, there is certainly an error somewhere.
One of the major limitations of a balance sheet is that it is considered a static document as it reflects the position of the enterprise at a moment of time. The real position of the enterprise may be changing from day to day and the same is not captured in the balance sheet.

Like income statement, a balance sheet can also be presented in horizontal or vertical form. Off late, the vertical form of presentation of balance sheet and income statement is more prevalent as opposed to the horizontal or ‘T’ form of presentation. The example below depicts the vertical form of balance sheet.

BALANCE SHEET
As at 31 December 2009
ASSETS
Fixed Assets:
Intangible assets $10,000
Property, plant and equipment $25,000
Investments $20,000
Loans and advances $10,000
Total fixed assets $65,000

Current Assets:
Cash and cash equivalents $12,000
Accounts receivable $  8,000
Inventories $  5,000
Prepaid expenses $  3,000
Investments held for trading $11,000
Other current assets $  6,000
Total current assets $ 45,000

                  
Total assets $ 110,000

LIABILITIES AND SHAREHOLDERS' EQUITY
Long-term liabilities
Bonds $20,000
Debentures $20,000
Bank loans $10,000
Total long-term liabilities $50,000

Current liabilities
Accounts payable $10,000
Provisions $  5,000
Other payables $  5,000
Total current liabilities $20,000

Total liabilities $70,000

Shareholders' equity
Share capital $20,000
Reserves $10,000
Retained earnings $10,000
Total shareholders' equity $40,000

                 
Total liabilities and shareholders' equity $110,000


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