What You Should Know About Balance Sheet List

Balance Sheet – Financial statements are defined as written records that show the commercial activities and financial performance of the facility or company, and they can also be defined as reports submitted by the company to its shareholders and investors showing the details of its financial position and being supported by documents. They are also known as the company’s financial results and final conclusions. Auditing of financial statements by third parties, such as government agencies, auditors, companies, etc., to ensure accuracy and for tax, financing, or investment purposes The financial statements include the income statement, the balance sheet, and the property rights statement.

Balance sheet

The balance sheet, or what is called the statement of financial position, is defined as one of the financial statements that shows the assets owned by the company and the liabilities and shareholder rights on them as of a specific date. The resources that are under the control of the company on a specific date and indicate their source It can also be considered a financial statement that provides an overview of what the company owns, what it owes, and the amount invested by investors. The balance sheet is used along with the income statement and other financial statements. Basic analytics or calculating financial ratios

The importance of the balance sheet

The importance of the balance sheet is that it is an important document that provides information to the lender, who is looking for specific information about the company to be taken into account in the event of purchasing the company’s shares. For the company, which helps in the process of making important decisions for the work and with regard to new business, the balance sheet shows the financial position of the company since the date of start-up, and this includes what is actually happening at the present time from the start of operation and what will happen before the date of starting the business.

The main equation of the balance sheet

The process of preparing the budget for any facility or project depends on the application of a special budget equation in which assets on the one hand are balanced with obligations or liabilities added to property rights on the other, and assets are defined as future economic benefits that are owned or owned by potential assets. Liabilities are potential future sacrifices for current economic benefits, and equity is defined as the residual interest in the entity’s assets after deducting liabilities. The equation is written based on the following main form:

Assets = Liabilities (Liabilities) + Equity

The equation shows that the company has to pay for the things it owns (assets) either by borrowing money (taking on liabilities) or by taking them from investors (issuing shareholder rights).

Balance Sheet Components

The budget consists of two main sections, and the following is a statement of them:

Assets

As for the assets part, the accounts are arranged from top to bottom according to the liquidity you have, or, in other words, the ease with which they can be converted into cash, and accordingly are divided into:

• Current assets: They are assets that can be converted into cash for a period of one year or less. Examples include the establishment’s fund, securities, inventory, and prepaid expenses.
• Non-current assets (fixed assets): These are assets that need more than one year to be converted into cash, such as land, machinery, and buildings.

Obligations and Equity

• Obligations: They are defined as those funds that the company owes to external parties, for example, invoices and interest on bonds owed by the facility. These obligations may be either short-term, i.e., due in less than a year, or long-term, meaning they are due after more than a year.
• Ownership rights: They are defined as the rights and money attributed to the owners or business owners, i.e., the shareholders, and they can be considered as net assets because they are equal to the total assets of the company minus the liabilities.

Steps to prepare the balance sheet

The balance sheet for any project or facility is prepared by following the following steps:

• Determining the value of all assets in the business since the start of operation and for all items of assets, examples of which are cash, equipment, vehicles, supplies, inventory, receivables, prepaid items such as insurance, and the value of any buildings or lands owned by the facility.
• Determine the value of all obligations with all of the previously mentioned items, which represent the amounts owed by the company to others and include commercial credit cards and any loans owed by the company.
• Determining the value of total equity and representing the difference between assets and liabilities.
• Verify that the value of assets is equal to the total value of liabilities and equity, and this is done through the application of the main equation of the budget.

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