The Financial Statement | Why it’s Essential for Business Entity

The Financial Statement | Why it’s Essential for Business Entity

Do you want to know Balance Sheet? And how does it works?

Different types of financial document and information help to find the financial condition of the business for making a sound decision and gather informative information about the business. The balance sheet is reflecting financial statement analysis and condition about a small business or a huge business. The owner wants to know what his investment position of the business, the real condition of the business shows the financial position which is known as Balance sheet and it has many parts of like as assets, liabilities and owners equity.

Why are financial statements prepared?

To know the position of the business
• To take the sound decision of owner’s of the business
• To analysis Future forecasting of the business
• preventing fraudulent and theft

Now we look into step by step details as is follows;

Basics of the Balance sheet:

The Statements shows a snapshot of the business financial reports at the end of the business period of time. The statement shows details of assets, liabilities and owners equity as the certain date. Usually, it is prepared at the end of the reporting period such as monthly, yearly or quarterly. At the end of the period of the balance sheet is an example below.
The financial statements format reflects the equal transactions which are formulated by Assets= Liabilities+ Owners Equity. The financial reports show that left-hand side is assets and the right-hand side is a liability which is equal and equilibrium as the equation formula shown. The formula is detailed below;
An asset is an item which is company own. The asset is an expectation that will buy the future benefits might be increased purchasing power or cash receipts. Deference types of assets are shown on a balance sheet. Assets are two types tangible and intangible. Tangible assets are following types assets are discussed below;
Current assets:
current assets are no longer than one year or which is no longer than one year operating activities and coverts to cash such as cash on hand, accounts receivable, depreciation of assets, ending inventory, interest on investment and so on.

Fixed assets:

Long-term assets are those which are longer than one year and operate than one year long or it will types of investing and will lasting longer than operating activates cycles such as; Investment, Building, machinery and many other assets are remit for their main accounts as they are used.
On the other hand, intangible assets are Goodwill, Copywrites, patents which are produce value for the rights and privileges of the company’s owners.


Liabilities are opposite to assets. Liability to show an ability to pay payables and other loans which are borrows to a name of the company. There have different types of liabilities like as assets and discuss below of these liabilities;

Current liabilities:

Current liabilities operating time is less than one year and it shows the short term payment ability of the company such as; Accounts payable, outstanding salaries or any types of payment which is payable less than one year.

Long-term liabilities:

A long-term liability which operating more than one year and meets the company’s liquidity needs is called long-term liabilities. A company borrows money from the long-term basis for the run the operations of the company and achieve the targeted goal that’s why a company loan from other institutions and other sources such as; Debentures, Bond, issuing shares.

Owners Equity:

Owner’s equity shows when assets deducted liabilities than what company owe. In other hands, Balance money what is left over from your all assets and fixture to deduct all payment of the payable paid and the leftover amount is owner’s equity.

Assets, Liabilities and Owners equity, in GAAP rules

Generally accepted accounting principal (GAAP) has rules to defined certain criteria to records assets, liabilities and owners equity the GAAP rules are as follows;

• To control by the corporations
• The results of a past transaction
• Future benefits of the corporations
GAAP are needed to evaluate assets a specific method which is traditionally conservative.


Long-term liability involves a commitment such as debentures, mortgages, loans etc.
Liabilities have a rule on GAAP which is discussing below;

• Present obligation of the corporation
• The rule of the past transactions
• To future cost of the corporation

What so ever, you have essentially wanted to take all benefits of an owner of the asset.
GAAP essentially want to record liabilities and preferred stocks and also long-term liabilities.


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