Understanding Balance Sheet Statement Part 1


https://quick-bookkeeping.net/ are amounts of money that a company owes to others. Liabilities also include obligations to provide goods or services to customers in the future. This brochure is designed to help you gain a basic understanding of how to read financial statements. Just as a CPR class teaches you how to perform the basics of cardiac pulmonary resuscitation, this brochure will explain how to read the basic parts of a financial statement. It will not train you to be an accountant , but it should give you the confidence to be able to look at a set of financial statements and make sense of them.

converted into cash

Like investments, these debts are considered either long-term liabilities or short-term. A short-term liability should be paid off within a year and long-term debts are due to be paid at any point after a year. A small bridge loan might be considered a short-term liability while a mortgage is listed with the long-term debits.

What might you need beyond balance sheets?

The current portion of longer-term borrowing, such as the latest interest payment on a 10-year loan, is also recorded as a current liability. Deferred tax liability is the amount of taxes that accrued but will not be paid for another year. Besides timing, this figure reconciles differences between requirements for financial reporting and the way tax is assessed, such as depreciation calculations. That’s because a company has to pay for all the things it owns by either borrowing money or taking it from investors . We accept payments via credit card, wire transfer, Western Union, and bank loan.

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It is also possible to grasp the information found in a balance sheet to calculate important company metrics, such as profitability, liquidity, and debt-to-equity ratio. Within the section on liabilities, you will find the company’s financial obligations to third parties. Like assets, these are divided into current and long-term liabilities. On the balance sheet, assets are subdivided into two main types.

How to Analyze a Balance Sheet

Credit SalesCredit Sales is a transaction type in which the customers/buyers are allowed to pay up for the bought item later on instead of paying at the exact time of purchase. It gives them the required time to collect money & make the payment. To break even, total sales revenue must exactly equal all your expenses .

Which ends on December 31 or some other logical date, such as June 30 or September 30. A Understanding The Balance Sheet generally picks a fiscal-year end date that coincides with the end of its peak selling period; thus a crabmeat processor might end its fiscal year in October, when the crab supply has dwindled. Most companies also produce financial statements on a quarterly or monthly basis.

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Its value indicates how much of an asset’s worth has been utilized. Depreciation enables companies to generate revenue from their assets while only charging a fraction of the cost of the asset in use each year. So it will be like accounts receivables, and we are assured of receiving our money in the future. Breakeven analysis is a technique used to determine the level of sales needed to break even—to operate at a sales level at which you have neither profit nor loss. Thus you decide to consider possibility #2—reducing your operating costs.


Retained earnings — net earnings the business uses to pay off its debt or re­invest in the business. The remaining is then distributed to owners as distributions or shareholders as dividends. Current liabilities are the company’s obligations to settle within 365 days /12 months of the balance sheet date.

Unlike the statement of cash flows or the income statement, both of which cover a period of time, the balance sheet represents the company’s position on a given date. The balance sheet provides shareholders a view of the company at a specific point in time, including assets, liabilities, and material events at the end of a fiscal period. Frequently, figures from previous periods are displayed along with the current numbers as as way to account for fluctuations in shareholders equity. This way, investors can measure the company’s assets, relative growth, and overall valuation. Furthermore, shareholders use a balance sheet as a tool for measuring liabilities and shareholders’ equity.

  • On the liabilities side, you’d list accounts payable, taxes owed, unearned revenue, bonds payable, wages, payroll and any loans or lines of credit the business is responsible for.
  • Because companies invest in assets to fulfill their mission, you must develop an intuitive understanding of what they are.
  • The company takes up the obligation because it believes these obligations will provide economic value in the long run.
  • To make sense of this, you should change how you look at a company’s financial statement.

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