Balance Sheet
Question/Statement: Select either the balance sheet or income statement and explain how the use of it may be applied to your everyday life.
The balance sheet may be applied to everyday life in that it can be used to assess past performance, as well as to plan for future undertakings. If, for example, an individual used one's birthday as the balance sheet statement date, then the balance sheet would show assets accumulated up to that point, such as one's bank accounts, furniture, computers, 401K, equity in one's house and/or car and so forth. The individual's liabilities would include one's mortgage and car payments, credit card balances, student loans. The difference between total assets and total liabilities equals the individual's net worth.
The balance sheet may be used to evaluate an individual's performance in everyday life, for example, to see how well certain goals have been met. If, for example, an individual planned to save $25,000 by his or her thirtieth birthday, then the balance sheets shows how close he or she has come to that goal; or, if the goal has been met, or turns out to be unrealistic, the balance sheet can indicate that it is appropriate to pursue another goal. Similarly, if someone chose to use the balance sheet as a planning tool, for example, deciding to pay off one's student loans in a specified time period, then the balance sheet can be used to decide what strategy one uses to achieve that goal. The balance sheet can indicate the need to cut back on other expenses, like entertainment, or to increase his or her income by...
Accounting Concepts and Practice Income Statement and Balance Sheet Smith Company Income Statement For the Year Ended 31st Dec 2012 Revenue $406,000 Less cost of goods sold $234,000 Gross profit $172,000 Less: Expenses Depreciation expense $24,350 Insurance $1,400 Marketing $4,500 Property taxes $8,900 Rent $18,000 Utilities $6,700 Salaries Total expenses ($131,350) Net Income (Balance C/D) $40,650 Computations Retained Earnings: Difference between debit and credit balances. $760,850 -- $718,000 = $42,850 Retained earnings to be transferred to the balance sheet: Income statement balance b/f balance c/d $40,650 $40,650 Add: retained earnings $42,850 Retained earnings balance c/d $83,500 Smith Company Balance Sheet For the Year Ended 31st Dec 2012 Non-Current Assets Equipment $316,000 Current Assets Accounts receivable $24,500 Cash $30,000 Inventory $25,000 Total current
Purpose of Income Statement The purpose of an income statement is to convey to interested stakeholders the level of income that the company has. In general, financial statements are used to provide a consistent method of presenting financial information that is used by creditors and investors to learn more about the financial health of the company. The income statement focuses on the revenues and costs that the company has in its
Balance Sheet Adjustments The updated balance sheet for Module 2 is as follows: Balance Sheet Assets Current Assets Cash Accounts Receivable Inventory Property, Plant, and Equipment Equipment Total Assets Liabilities and Stockholder's Equity Current Liabilities Accounts Payable Long-Term Debt Long-Term Debt Total Liabilities Stockholder's Equity Common Stock Paid In Capital Retained Earnings Total Stockholder's Equity Total Liabilities & Stockholder's Equity Because the customer did not commit to the purchase, the Sales account would have been credited the 45,500 and the inventory account debited 45,500 to correct the original transaction. The computation of the
Ratio Analysis The Balance Sheet and the Statement of Income are essential, but they are only the starting point for successful financial management. Apply Ratio Analysis to Financial Statements to analyze the success, failure, and progress of your business. Ratio Analysis enables the business owner/manager to spot trends in a business and to compare its performance and condition with the average performance of similar businesses in the same industry. To do this
Income Statement Vertical2011 Vertical 2010 Horizontal Sales Other Revenue Total Less Cost of Goods Sold Operation & Admin Expenses Income Tax Interest Expense Total Net Income Because of economic decline and uncertainties of unemployment, energy prices, etc. 2010 was in over deflation and 2011 had an overall inflation (2011 Annual Report, 2011). Income tax increased in 2011 due to repatriation taxes on dividends from a Canadian subsidiary. Balance Sheet Vertical 2011 Vertical 2010 Horizontal Cash & equivalent Receivables Inventories Prepaid Expenses Total Property' Depreciation & Amortization -71.30% -68.20% Goodwill Invest. Unconsolidated affiliate Other Assets Total Assets Cur. Note Maturities Cur. Cap. Lease
Capital structure decisions can be deliberate as well, yet an analyst without knowledge of the firm's intentions could make an entirely different determination about the validity of the firm's capital structure if based only on the balance sheet. At a minimum, the income statement is also required and in most cases much more information than that is needed to make an accurate assessment of the firm's financial condition (Kennon,
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