Types Of Balance Sheet

Submitted By michellelala
Words: 642
Pages: 3
Open Document
6a. Balance sheet provides information about financial structure. By looking at a balance sheet we can know if it iss financially sound by looking at its debt equity ratio. It refers to the ability to pay debts in short terms. When the ratio is greater than 1, then it means that the company is able to pay debts to creditor. However if the ratio is lesser than 1, then it means that the company is at risk and does not have the ability to pay debt to its creditor, thus it is not financially sound.
b. Balance sheet enables us to know if a company pays its bills on time by looking at the working capital. It is calculated by subtracting current liabilities from current assets. If the working capital is low or negative then it indicates of short tem financial difficulties. Moreover by lookin at solvency and debt equity ratio also enable us to identify if a company can pay its bill on time. Solvency ratio refers to the ability to pay long term whereas debt equity ratio refers to the ability to pay short term debt. If the ration is lesser than 1, then it means that the company is enable to pay its debt on time.
c. Board of director should declare if there is enough of retained profit but if these past earning have been reinvested in inventory, land, equipment which is part of operating assets, and have a liquidity ratio of greater than 1 ( do not have a lot of cash). They will eventually cause cash strain if the retained earning are distributed for dividends.
d. When we calculate profits we subtract the depreciation of equipment as an expense from its original cost. It is use to show how much economic value of assets is estimated to be used so far. Comparing the cost and depreciation value will show the age of the equipment.
10a. Net profit is the profit made by the company which is equal to total revenue minus total expenses. When a company earns a profit, it can either be distributed to shareholders as dividends or kept in the business to grow the business.
b. Income statement is a temporary account and balance sheet is a permanent account. When income statement is closed, the balances are transferred to retained profit account on balance sheet at the end of each accounting period. This retained profit is the link between income statement and balance sheet.
c. Dividends to shareholders are part of the retained profits. They are not an expense thus it is not deducted in calculating net profit for the period.

Problem 2.7
FINEWINES LIMITED
BALANCE SHEET AS AT 30 JUNE 2012 Assets $ | Liabilities $ | Current assetsCash 4 340Inventory 9 800 Account receivable
Show More

Related Documents: Types Of Balance Sheet

Notes On Notes Accounting

Notes Accounting 8/21/2014 Balance Sheet – What do we own and what do we owe. Does not take into annual depreciation, but it does take into account cumulative depreciation (value from all years) Liability – What we owe - (current and non current is important) Equity – (stockholder’s equity) What’s left after liability is taken out of your assets. Asset – Positive thing that the company owns ex. Prepaid insurance can be seen as an asset for years in the future – not the current year though (that…

Words 1529 - Pages 7

Accounting Notes

Accounting Notes: Chapter 2 Balance Sheet and the Flow of Costs: * When costs create an immediate benefit, company records it to be an expense on the income statement. * Example: Gasoline for delivery vehicles * When cost creates future economic benefit, the company records the cost on the balance sheet as an asset * Ex: Inventory to be resold * Ex: Equipment to be later used for manufacturing * Asset = future economic benefit * Remains on balance sheet…

Words 790 - Pages 4

Notes On Intermediate Accounting

ACCT 4111 Intermediate Accounting I 04:33:29 AM 1 ACCT 4111, Sumer 2015 Dr. Taewoo Park Office : #522 Robinson College of Business (35 Broad Street) Phone : (404) 413-7219 E-mail : tpark11@gsu.edu Office Hour : Mondays and Wednesdays 02:30 - 03:30 PM, and by appointment 04:33:29 AM 2 COURSE DESCRIPTION REQUIRED MATERIAL Spiceland, Sepe and Nelson, Intermediate Accounting, 7th edition PREREQUISITE CLASS FORMAT 04:33:29 AM 3 GRADING Three exams 90 % Attendance and Quizzes 10 % Total…

Words 3581 - Pages 15

Notes On Financial Accounting

Financial Accounting Study online at q uiz let.c o m/_1b r2iw Accounting Sys tem that collects and proces s es (analyzes , meas ures , and records ) financial information about an org anization and reports that information to decis ion makers . Accounting entity Is the org anization for with financial data are to be collected. The four bas ic s tatements : 1. Balance Sheet 2. Income Statement 3. Statement of Retained Earning s 4. Statement of Cas h flows Balance Sheet Reports the amount of…

Words 5361 - Pages 22

Notes On Accrual Accounting

Glossary Chapter 5 Accrual accounting A company records the financial effects of transactions and other events and circumstances in the periods when they occur rather than in the periods when it receives or pays cash; measures the accomplishments (resources created) and the efforts (resources used up) so that the reported net income measures the results of the company’s income-generating activities. Asset Test Test of a reportable segment where its segment assets are 10% or more of the combined…

Words 1700 - Pages 7

Accounting notes Essay

The Basic Objective of Accounting The basic objective of accounting is to identify and measure the activities of a business entity in order to evaluate its performance and ot assess its financial health; then communicate the results to stakeholders through a set of accounting reports that contain useful information so as to help them make rational economic decisions Financial statements financial statements are the business documents that companies use to report the results of their activities…

Words 929 - Pages 4

Accounting Notes Essay

DEFINITIONS-CHAPTER 1--------------------------------------------- Financial Accounting- The primary objective of financial accounting is the preparation of financial statements - including the balance sheet, income statement and cash flow statement Financial Statements-Balance sheet, Income statement, statement of cash flows and owner’s equity Financial Reporting objective-To provide information about the reporting entity that is useful to present and potential equity investors, lenders, and…

Words 589 - Pages 3

Notes On Managerial Accounting

exercise M1-1 thrue M1-3. E1-3, E-5, E-6, E-8, E-9, E-11, P1-1 1) it is a system that processes and collect financial info. About the org. and presents that info. To the decision makers. 2) *Financial accounting is focus in the external decision makers and prepare 4 financial statements. *Managerial accounting is information more detailed for internal use, which reports to the owners about the conditions and transactions of the company. 3) The internal group are the managers or personal which is inside…

Words 508 - Pages 3

Notes On Managerial Accounting

Chapter 1-1 CHAPTER 1 MANAGERIAL ACCOUNTING Managerial Accounting, Fifth Edition Chapter 1-2 Study Study Objectives Objectives 1. Explain the distinguishing features of managerial accounting. 2. Identify the 3 broad functions of management. 3. Define the 3 classes of manufacturing costs. 4. Distinguish between product and period costs. 5. Explain the differences between a merchandising and a manufacturing income statement. Chapter 1-3 Study Study Objectives Objectives 6. Indicate…

Words 2485 - Pages 10

Essay on Accounting 2001 Notes

1. Describe the primary forms of business organization. 2. Identify the users and uses of accounting information. 3. Explain the three principal types of business activity. 4. Describe the content and purpose of each of the financial statements. 5. Explain the meaning of assets, liabilities, and stockholders’ equity, and state the basic accounting equation. 6. Describe the components that supplement the financial statements in an annual report. Forms of business organization:…

Words 1340 - Pages 6