Balance Sheet items
Summary
Purposes of the Balance Sheet
1. A balance sheet, or statement of financial position, summarizes the financial position of a company at a particular date by reporting the economic resources (assets), the economic obligations (liabilities), and equity. It reports a company's resource structure (major classes and amounts of assets) and its financial structure (major classes and amounts of liabilities and equity). It is a detailed explanation of the basic accounting equation: Assets = Liabilities + Stockholders' Equity.
2. The balance sheet information helps external users (a) assess the company's liquidity, financial flexibility, and operating capability, and (b) evaluate its income-producing performance during the period. Liquidity is the speed with which assets can be converted into cash to pay bills. Information about liquidity helps users evaluate the timing of cash flows. This is important in evaluating the amount of future cash flows.
3. A company's capital, its assets less its liabilities, is also called its net assets or owners' equity. By comparing beginning owners' equity with ending owners' equity, the financial statement user can tell whether capital for the accounting period was increased or decreased.
Recognition in the Balance Sheet
4. Recognition is the process of formally recording and reporting an element in the financial statements.
To be recognized, an item must (a) meet the definition of an element as specified in FASB Statement of
Concepts No. 6, (b) be measurable, (c) be relevant, and (d) be reliable.
Elements of the Balance Sheet
5. The elements of the balance sheet are the broad classes of items comprising it. These items and their definitions are:
a) Assets: The probable future economic benefits obtained or controlled by a company as a result of past transactions or events.
b) Liabilities: The probable future sacrifices of economic benefits arising from the present obligations of a company to transfer assets
Purposes of the Balance Sheet
1. A balance sheet, or statement of financial position, summarizes the financial position of a company at a particular date by reporting the economic resources (assets), the economic obligations (liabilities), and equity. It reports a company's resource structure (major classes and amounts of assets) and its financial structure (major classes and amounts of liabilities and equity). It is a detailed explanation of the basic accounting equation: Assets = Liabilities + Stockholders' Equity.
2. The balance sheet information helps external users (a) assess the company's liquidity, financial flexibility, and operating capability, and (b) evaluate its income-producing performance during the period. Liquidity is the speed with which assets can be converted into cash to pay bills. Information about liquidity helps users evaluate the timing of cash flows. This is important in evaluating the amount of future cash flows.
3. A company's capital, its assets less its liabilities, is also called its net assets or owners' equity. By comparing beginning owners' equity with ending owners' equity, the financial statement user can tell whether capital for the accounting period was increased or decreased.
Recognition in the Balance Sheet
4. Recognition is the process of formally recording and reporting an element in the financial statements.
To be recognized, an item must (a) meet the definition of an element as specified in FASB Statement of
Concepts No. 6, (b) be measurable, (c) be relevant, and (d) be reliable.
Elements of the Balance Sheet
5. The elements of the balance sheet are the broad classes of items comprising it. These items and their definitions are:
a) Assets: The probable future economic benefits obtained or controlled by a company as a result of past transactions or events.
b) Liabilities: The probable future sacrifices of economic benefits arising from the present obligations of a company to transfer assets