The Importance Of Balance Sheet

Balance Sheet By definition, a balance sheet is a statement of an organization showing its financial position during a specific date or often at the end of every year. As such, it analyzes the assets, credits, and equity of the business to give the manager an overview aspect of the business. The major essence of a balance sheet is that it gives the manager or investors an idea of the company’s strengths and weak points and the amount invested by shareholders. Also, the main ideology driving the balance sheet is that it denotes the acquisition of the assets through making payment either by borrowing cash or acquiring money from investors (Fridson & Alvarez, 2011). This aspect brings out the overall idea of wanting to monitor the company’s financial …show more content…
It further assists the creditors and interested investors to determine the organization’s financial position because of the list of assets and creditors outlined in the balance sheet. Due to the providence of the financial statement each year, the company is at a position to evaluate its progress on the financial operations of the business. Therefore, if the company is seeking to borrow from banks or the public, the borrowers analyze the company’s balance sheet to determine the firm’s viability to repay the loan. It is also incorporated in the statement of financial income to enable the understanding of business operations (Palepu & Healy, 2007). Therefore, the balance sheet plays a significant role in showing some vital aspects about business. Given this, the purpose of a balance sheet is to reveal the financial or tangible business assets and claims of creditors and investors of the business and three of the major types of assets and the claims of creditors and owners shown on the typical balance sheet are assets, fixed assets, and total liabilities and …show more content…
Given this, the liabilities of a firm can be classified into short-term and long-term. The short term liabilities, on the one hand, are whereby the debt is paid within a period of one year. The long term debts, on the other hand, are those debts that are paid over a long period of time such as mortgages. The owners of the business include the shareholders and investors. When the owners finances the business or increases the assets of the business it is called equity. The essence of the owners is that they provide the initial capital of the business and further are liable to the debts of the business incase its operations or assets does not pay off the debts (Palepu & Healy, 2007). Evidently, the sole aim of a business financial statement is to enable the firm managers, investors and owners to keep track of the company’s