The Balance Sheet
Although the balance sheet was first implemented just a couple of centuries ago, it has quckly developed and sophisticated to become nowadays a widely used and powerful tool in the hands of professional users, well known and popular even among the mass public. In spite of its prominence, or may be because of it, the balance sheet can not be easily and fully described in a few words, but still, if we leave aside its various functions and forms and any other subjective factors, we can state that the balance sheet is a summary of an enterprises' assets, liabilities and equity at a specific moment of time. To simplify this description even further we could say that the balance sheet shows an entity's possessions, obligations and others' debts to it.The "objective" point of view however is often too restrictive, and the most simple things many times prove to be rather complex...Among the thousand more complex definitions appended to the balance sheet one of my favorites is the definition given by .... according to which the balance sheet is a statement meant to communicate information about the financial position of an enterprise at a particular point in time, summarizing the information contained in ac
The first question a lender must ask is "What if this loan is not repaid?" The lender will want something to sell to get paid back. The lender finds that interesting, but the lender will not be comforted by the fact that the $1 million you spend on a new building will be depreciated over 10 years when the loan is for three. Such a listing of possessions is a major element in the construction of a balance sheet. Most of us at some stage in our lives will be required to compute a listing of our possessions. Even from here it becomes obvious that the balance sheet is a sheet or summary of two different aspects of one and the same thing: an entity's financial position. Now, having in mind all afore said, let us view another definition of the balance sheet: "You can not have a more meaningless and confused statement holding a position of such a great importance" (Keron Bhattacharaya, "The accountancy's faulty sums"). Bibliography Bibliography:Arnold J. The history of the so called financial statements, and the balance sheet among them, can be traced back to Renaissance Italy, where along with the double - entry book - keeping they first evoked to respond to the growing more and more complex needs of the accounting connected with the economic development of the society at that period (expansion of trade activities, development of banking, etc. Belkaouli in "Accounting theory": "The balance sheet measures the financial positions at a point in time". Similarly in a number of cases where a business is in trouble the assets have been revalued in order to bolster the image of the business and to promote the impression of it having a "sound asset base". The financial statements pull all these things together, but any analysis of how a company is doing needs a different kind of operational data. They may be less interested in any one period's report than the trend. , Longman Dictionary of Business English, 2nd ed. It is probably fair to say that income statements are constructed with the IRS in mind more than any other user.
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