Mind Map Gallery Balance Sheet
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Balance Sheet
A mind map about the Balance Sheet. A balance sheet is the most important financial document for any business as it offers the most critical and valuable insights into the health of a business from a standard point of view.
Edited at 2021-01-27 07:57:27
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Balance Sheet
importance
First thing asked for by a potential investor
Used by the owners when they are trying to craft a better and more effective organizational strategy
Used by employees who need to adjust their work processes for them to reach or achieve shared organizational goals
Knowing how to read and understand a balance sheet is highly important and a compulsory business/financial/accounting skill
Definition
A financial document that helps to understand the worth of an organization, aka, its book value
Tells us about the true book value of an organization by listing out all of the company’s assets, liabilities, and owner’s equity
A balance sheet may be prepared as per the desired frequency of an organization; it could be monthly, bi-monthly, quarterly, bi-annually, or annually
Applications
Reviewed internally by the owners, key stakeholders, managers, and all the way down to employees to provides a clear insight into whether a company is doing good or failing to meet its business objectives
Helps the people reviewing the balance sheet make informed decisions and change organizational policies and work practices to better adjust as per the requirements
Reviewed externally by a potential investor or someone interested to buy the company as a balance sheet is designed such that it provides insights into the resources that are owned by the company, available to it, and how are/were they financed in the first place
Allows investors to make a sound decision and calculate key metrics such as profitability, debt-to-equity ratio, and liquidity so they can decide on whether it would be wise for them to invest in the company or not
Viewed by auditors to make sure that a company complies with local laws and following all the reporting laws that it is legally subjected to
Equations
Assets = Liabilities + Owner’s Equity
Liabilities = Assets – Owner’s Equity
Owner’s Equity = Assets – Liabilities
reasons for imbalances
When there is incomplete, incorrect, or insufficient data
When the transactions have been entered incorrectly
If there are any errors in the currency exchange rates
Errors in the calculation of inventory levels
If or when the equity has been calculated incorrectly
When there has been a miscalculation of amortization or depreciation
Contents
Assets: Represent all that is owned by an organization. All of these resources or objects hold characteristic and/or calculable value.
Current Assets
Non-Current Assets
Liabilities: Represent legal and financial obligations that an organization is bound to pay to the entity it owes that amount to
Current Liabilities
Non-Current Liabilities
Owner's Equity: All that which is left or owned by the owner after all the liabilities have been paid