THE BALANCE SHEET

Financial statetments are the final product of the accounting process.they provide information on the financial condition of a company.The balance sheey,one type of financial statement,provides a summary of a company owns and what it owes on one particular day.

Assets represent everything of value that is owend by a business,such as property,equipment,and accounts receivable.On the other hand,liabilities are the debts that a company owes-for example to suppliers and banks.if liabilities are subtracted from assets(assets-liabilities),the amount remaining is the owners’hsare of a business,this is know as owners’or stockholders’equity.

One key to understanding the accounting transaction of a business is to understand the relationship of its assets,liabilities,and owners’equity.this is often represented by fundamental accounting equation:assets equal liabilities plus owners’ equity.

ASSETS=LIABILITIES+OWNERS’ EQUITY

These three factors are expressed in monetary terms and therefore are limitied to items that can be given a monetary value.The accounting equation always remains in balance;in other words,one side must equal the other.

The balance sheet expands the accounting aquation by providing more information about the assets,liabilities,and owners’equity of a company at a specific time(for example,on December 31,1993).it is Mde up of two parts.the first parts lists the company assets,and the second part details liabilities and owners’equity.Assets are divided into current and fixed assets.Cash,acconts receivable,and inventories are all current assets.Property,buildings,and equipment make up the fixed assets of a company.The liabilities section of the balance sheet is often divided into current liabilities (such as bonds and long-term notes).

The balance sheet provides a financial picture of a company on a particular date,and for this reason it is useful in two important areas.Internally,the balance sheet provides managers with financial information for company decision making.Externally it gives potential investors data for evaluating the company’s financial position.