The balance sheet

The balance sheet

Contents

Why is the balance sheet important in order to understand the financial condition of the organization?  1

What types of accounts are found in the balance sheet?. 1

How are the accounts arranged and grouped?. 1

What types of business transactions add to the balances in each grouping of accounts on the balance sheet?  2

What types of information may users of the balance sheet discern by properly analyzing a balance sheet?  2

Why is the balance sheet important in order to understand the financial condition of the organization?

A balance sheet shows a summary of all the financial balances of a business organization at the end of a trading period, usually at the end of the year (Spurga, 2004). The balance sheet shows the net worth of the organization which is usually the difference between assets and liabilities. It is imperative but not a must that the assets side balances with the liabilities and owners’ equity side. Since the balance sheet is drawn at the end of a certain period and since it captures the net worth of the business, it thus serves a very important role in showing the financial position of an organization.

What types of accounts are found in the balance sheet?

The balance sheet has various types of accounts. These include; assets, (current, fixed and intangible), liabilities (short and long term) and owners’ equity accounts (Spurga, 2004).

How are the accounts arranged and grouped?

The assets are listed on the left side of the document. The assets are listed in order of their liquidity. Usually, the curre.............