Balance Sheet

Balance Sheet

It comprises of two different words i.e. balance and sheet. Here, all the items are being shown in a proper proportion and it is being identified that the organisation is being working well towards the area of doing the tasks being assigned (Porter, 2009). Balance sheet is a part of financial statement of the organisation which provides details of total of assets and liabilities of the organisation. One of the important things to be noted about the balance sheet is that, here total of assets of the organisation are equal to total of its liabilities. It is also being termed as statement of financial position of the organisation. Balance sheet of the organisation is being created for a particular year and for each year; the organisation is being involved in creation of its balance sheet for finding out its financial position.

Format of Balance Sheet

a.       Assets being included in the balance sheet are being considered to be resources of the organization and it shows the resources being available to the organization for the purpose of meeting its future needs.

b.      Fixed assets of organization have life span of more than 1 year. Fixed assets of the organization would include land and building, plant and machinery and equipments etc.

c.       Current assets of the organization are those which are being easily convertible into cash. These are the kinds of assets which can be marketable securities, cash equivalents and short term debts.

d.      Tangible assets are those assets which include both fixed assets including machinery, building and land along with current assets such as inventory of the organization.

e.       Opposite of tangible asset is intangible asset. This is a kind of asset which includes assets such as parents, trademarks, copyrights, and goodwill and brand recognition at a particular point of time.

f.       If an asset is there within the organization and it is not being completed at a particular time then the asset would be termed as capital work in progress. There are certain examples of capital work in progress of the organization. The examples include advance payment for construction of a building or factory premises or installation of software for establishment of plant and machinery which has not been completed entirely.

g.      Noncurrent liabilities are being identified in a negative manner. There are the kinds of liabilities which are not considered to be current liabilities.

h.      Noncurrent investments are those investments which are not being held for the purpose of sale but are being held for ensuring that, they are being retained by the organization for long term.

Examples of Non Current Investment

1. Investment in property
2. Investment in debentures and bonds
3. Investments in mutual funds
4. Investment in government securities

Deferred tax liabilities

Deferred tax liabilities are shown under the head of non-current liabilities under the head of equity and liabilities in the balance sheet of the organization. The balance in tax liabilities is being converted as deferred tax assets in one year. Deferred tax is the income tax on difference in taxable income of the organization and accounting income. This is being compared every year within the organization.

Long term loans and advances

These are the loans and advances which are expected to be returned back in cash or kind in the form of asset after a period of 12 months from the balance of balance sheet. One of the examples of long term loans and advances is capital advance

Money received against Share Warrants

Share warrant is a document which gives right to an individual in the course of purchase of shares of stock of an organization. The individual is not necessarily required to convert the warrant into stock. There are certain companies which are being involved in doing sale of share warrants in lieu of cash to make payment to vendors, contractors or even at the point when they are being hiring employees. This tactic helps in preservation of cash and provided warrant receipt. A public company might look forward to issue warrant for attracting investors. These warrants are being considered to be marketable in nature.

Short Term Loans

These are the categories of loans which are being paid off by the organization within a period of less than 1 year.

Deferred Tax Assets

These are the noncurrent assets of the organization and form part of balance sheet. The balance in deferred tax assets is of a particular kind is converted in deferred tax liabilities in another year. These are only book entries but these are not actual liabilities or actual assets of the organization.

Analysis of Balance Sheet

One of the key points to be taken into consideration in the course of balance sheet is to identify the way which is to be used by the organization for ensuring that the balance sheet is being read well (Terence, 2013). Analysis of balance sheet is also going to provide help and assistance to the organization in a way that, proper areas of working are being carried out. A balance of the organization provides reporting of assets, liabilities and equity at a particular point of time. This particular thing helps in ensuring that the organization is being allowed to have evaluation of the way by which the organization is being financing its operations and distributing the same to its owners.

There are certain parameters which are being used for doing analysis of balance sheet of the organization. The parameters which are being used by the organization would include the parameters such as current ratio, liquidity ratio, capital gearing ratio, debt equity ratio and solvency ratio.

Classified Balance Sheet

The balance sheet of the organisation is being classified into different categories. The classification is being carried out in the course of current assets, property, plant and equipment, current liabilities, long term liabilities, and others. In this manner, it provides information regarding the way in which assets of an entity are being taken into consideration. With the help of usage of classified balance sheet, an individual can easily figure out the details of the organisation as this kind of balance sheet is being easily readable without any kind of trouble or issue arising at a particular point of time.