Answer Posted / monailsa
In financial accounting, a balance sheet or statement of
financial position is a summary of the financial balances
of a sole proprietorship, a business partnership or a
company. Assets, liabilities and ownership equity are
listed as of a specific date, such as the end of its
financial year. A balance sheet is often described as
a "snapshot of a company's financial condition".[1] Of the
four basic financial statements, the balance sheet is the
only statement which applies to a single point in time.
A standard company balance sheet has three parts: assets,
liabilities and ownership equity. The main categories of
assets are usually listed first, and typically in order of
liquidity.[2] Assets are followed by the liabilities. The
difference between the assets and the liabilities is known
as equity or the net assets or the net worth or capital of
the company and according to the accounting equation, net
worth must equal assets minus liabilities.[3]
Another way to look at the same equation is that assets
equals liabilities plus owner's equity. Looking at the
equation in this way shows how assets were financed: either
by borrowing money (liability) or by using the owner's
money (owner's equity). Balance sheets are usually
presented with assets in one section and liabilities and
net worth in the other section with the two
sections "balancing."
Records of the values of each account or line in the
balance sheet are usually maintained using a system of
accounting known as the double-entry bookkeeping system.
A business operating entirely in cash can measure its
profits by withdrawing the entire bank balance at the end
of the period, plus any cash in hand. However, many
businesses are not paid immediately; they build up
inventories of goods and they acquire buildings and
equipment. In other words: businesses have assets and so
they can not, even if they want to, immediately turn these
into cash at the end of each period. Often, these
businesses owe money to suppliers and to tax authorities,
and the proprietors do not withdraw all their original
capital and profits at the end of each period. In other
words businesses also have liabilities.
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