Before going through the details we recommend you to see this article (click here). Financial accounting is based on three things or has main three parts. The balance sheet is one of those parts. A balance sheet for position and improvement is for seeing the assets and liabilities. Similarly, it can prepare any time to see these as on that date.
Elements of Balance sheet
There are three elements in this section.
- Assets
- Liabilities
- Owners fund
Assets
Things that are owned and give present and future benefits. Land and buildings, investments, machinery, etc. are the assets. In this case, be sure personal assets are different. In the balance sheet, this is on the right-hand side.
After doing hypotheses all the assets we know are broken down into three-part. The parts are Fixed assets, current assets, and Investments. In this case, there are lots of good pages are there to know the details about assets and their parts.
But, the main thing is that we have to keep the assets as minimum as possible. The main reasons are
- Maintainance of the assets is also cost. So, we have to cut the cost.
- Assets could be affected by new technology, rules and regulations. At that time those will turn into waste.
- Assets damage could cost heavily on the entire management.
Liabilities
It’s an obligation of the enterprise. When the outflow of economic resources in settlement of present obligation can be anticipated the value of outflow can be measured. Long-term liabilities, current liabilities, provision, owners fund, etc. are the important parts and calculated in the liabilities portion. The most important things are which we have to see
- Long-term liabilities like bank loans (>1 year), debentures, deferred tax liabilities, etc. have to be low.
- We have to manage current liabilities and some current liabilities have clear.
- Provisions like electricity bonuses have to calculate according to the position.
- Similarly, other provisions we have to clear as quickly as possible but don’t do anything with the taxes. Pay that properly and authentically.
Owners Fund
After deducting all liabilities, the residual interests are this. It’s the excess of the aggregate assets of enterprises. We calculate this on the side of the liabilities section.
Equations of balance sheets to improve position and improvement
The basic but main three equations are
- Assets (A) = Liabilities (L) + Owners Fund (O).
- Owners Fund (O) = Assets (A) – Liabilities (L).
- Owners Fund (O) = Capital + Retained Earnings.
Furthermore, when we will calculate liabilities and assets we have to look at all the necessary documents. However, billings, journals, bonds, etc. are the main documents. Next, we deviate the liabilities, then the assets. After that, we usually prepare the balance sheet. It’s based on a certain amount of period.
No responses yet