Balance Sheet

Balance SheetimportanceDefinitionApplicationsEquationsreasons for imbalancesContentsFirst thing asked for by a potential investorUsed by the owners when they are trying to craft a better and more effective organizational strategyUsed by employees who need to adjust their work processes for them to reach or achieve shared organizational goalsKnowing how to read and understand a balance sheet is highly important and a compulsory business/financial/accounting skillA financial document that helps to understand the worth of an organization, aka, its book valueTells us about the true book value of an organization by listing out all of the company’s assets, liabilities, and owner’s equityA balance sheet may be prepared as per the desired frequency of an organization; it could be monthly, bi-monthly, quarterly, bi-annually, or annuallyReviewed 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 objectivesHelps the people reviewing the balance sheet make informed decisions and change organizational policies and work practices to better adjust as per the requirementsReviewed 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 placeAllows 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 notViewed by auditors to make sure that a company complies with local laws and following all the reporting laws that it is legally subjected toAssets:Represent all that is owned by an organization. All of these resources or objects hold characteristic and/or calculable value.Liabilities:Represent legal and financial obligations that an organization is bound to pay to the entity it owes that amount toOwner's Equity:All that which is left or owned by the owner after all the liabilities have been paidCurrent AssetsNon-Current AssetsCurrent LiabilitiesNon-Current LiabilitiesAssets = Liabilities + Owner’s EquityLiabilities = Assets – Owner’s EquityOwner’s Equity = Assets – LiabilitiesWhen there is incomplete, incorrect, or insufficient dataWhen the transactions have been entered incorrectlyIf there are any errors in the currency exchange ratesErrors in the calculation of inventory levelsIf or when the equity has been calculated incorrectlyWhen there has been a miscalculation of amortization or depreciation
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