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Lecture BB Bussiness Management & Application To Architecture

A balance sheet is one of the five main financial statements that provides a snapshot of a company's financial position at a specific point in time. It lists a company's assets, liabilities, and shareholders' equity. The balance sheet is important because it shows investors a company's liquidity, debts, and ability to generate future cash flows. The key components are assets (what the company owns), liabilities (what the company owes), and shareholders' equity (the owners' claim on the assets). The formula for the balance sheet is assets = liabilities + shareholders' equity.

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47 views

Lecture BB Bussiness Management & Application To Architecture

A balance sheet is one of the five main financial statements that provides a snapshot of a company's financial position at a specific point in time. It lists a company's assets, liabilities, and shareholders' equity. The balance sheet is important because it shows investors a company's liquidity, debts, and ability to generate future cash flows. The key components are assets (what the company owns), liabilities (what the company owes), and shareholders' equity (the owners' claim on the assets). The formula for the balance sheet is assets = liabilities + shareholders' equity.

Uploaded by

LANCE
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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What is a Balance Sheet?

• One of the five main financial statements used


by accountants and owners of corporate
houses is the balance sheet. It is generally
referred to as the Financial Status Statement
or Statement of Financial Position.
Why is a Balance Sheet important?
• Investors tend to look for growth, value,
dividends, quality, liquidity or companies with
sustainable competitive advantages. One
strategy that these investors use in choosing a
company is to look at the latter’s balance
sheet.
• This is because the financial position of the
entity affects everything it does and is able to
achieve.
• A company with liquidity, low debts, and
sufficient working capital has a higher
probability of being successful.
• It can fund future needs, such as capital
investments, to grow the company or
overcome unexpected challenges.
• It also affects whether and how much of the
cash flows can be returned to shareholders in
dividends or stock buybacks
• In a bank’s perspective : balance
sheets are important because these
documents let banks know the business
qualifies for additional credit or loans. 
• Balance sheets helps potential investors
better understand where their funding will
go and what they can expect to receive .
Formula Used for a Balance Sheet

• Assets = Liabilities + Shareholders’


Equity
• This formula is intuitive: a corporation
should borrow money (taking on liabilities)
or take it from investors (issuing
shareholders’ equity) for all the things it
holds (assets) and for all the items it owns.
Elements of a Balance Sheet
• Assets – Product and assets owned by the
corporation. Accounts are classified from top to
bottom within the assets category in order of their
liquidity, that is, the ease with which they can be
transformed into cash.
• They are categorized into current assets that can be
converted to cash in one year or less, and non-
current or long-term assets that cannot be converted
to cash in a year or less.
• Liabilities – Corporation debts. Current
liabilities are those that are due and are
listed in order of their due date within one
year. Non-current liabilities are due after
one year at any point.
• Equity – Contribution and past earnings of
business owners. It is often referred to as
“net assets,” as it is equal to a
corporation’s total assets minus its
liabilities (the debt it owes to
nonshareholders).
Step 1: Gather the needed
information
• Any product showing updated account
balances is mostly used. However, the
modified trial balance will be the foremost
relevant method for this.
Step 2: Prepare the heading

• The business name is used in the first


paragraph.
• The second line indicates the report title. We
can use either “Balance Sheet” or “Statement
of Financial Position”.
• The third line shows the date of the report.
Step 3: Report all company assets
• Take all funds from the trial balance and list
them on the balance sheet.
• Current assets are independently reported
from non-current assets
• Calculate the total current assets, the total
non-current assets, and the total assets.
• Double-rule the number of total assets
Step 4: Report all liabilities

• Present “liabilities and capital”.


• Begin by presenting existing liabilities,
followed by non-current liabilities.
• When you use properties, take the totals of
each as well as the amount of total liabilities.
Step 5: Report the ending balance of
capital
• The final capital balance can be taken from
the Statement of Changes in Equity, which is
where the beginning and ending balances is
shown in a company’s equity during a
reporting period
• Take the total number of “liabilities and
capital” after adding capital
• That total amount must be double-ruled.
6. Important Notes in preparing a
Balance Sheet:
• Total assets should be as large as the combined total
of all liabilities and capital. If they’re not, then in the
process, one thing should have gone wrong.
• The illustrative example we have above is for a sole
proprietorship company. Many capital accounts need
to be presented if you are making a balance sheet for a
partnership and corporation.
• The capital component of a corporation is considered
to be the equity of stockholders and is generated from
capital stock, reserves, and retained earnings.
7. Reminders in Creating a Balance
Sheet
• Before creating your balance sheet, execute a trial balance
• Regularly review balance sheet transactions
• Pinpoint any concerns ASAP
• Keep the financial statements organized.
• Whatever record is involved, the more organized you are, the better.
• Your company’s biggest task is to be as proactive as possible and to
maintain accurate financial records for reference.
•
Errors are inevitable. However, if you have an onsite concept to track
them back, you will be able to prevent larger record issues in the future.
• I hope you found this “How to make a Balance Sheet in the Philippines”
guide informative. If you found this guide helpful, please like and share!
•

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