A Balance Statement: What It Is

A Balance Statement is a financial statement showing assets, liabilities, and net worth at a specific time. Under generally accepted accounting principles, GAAP, the following rules apply to the creation of Balance Sheets. Assets are to be defined as items of value, both tangible and intangible, that a company owns or controls. Liabilities are debts owed by an organization. Equity is a residual account. Equity equals assets minus liabilities.

Current assets are assets that will become cash in the ordinary course of business within one year. Current liabilities are those debts or obligations that are scheduled to mature and become due in the next twelve months. Current assets are listed on the balance sheet in order of their liquidity. In this context, liquidity refers to the speed with which current assets are converted into cash. Listed below current assets are fixed assets, which are sometimes referred to as property, plant and equipment. Fixed assets are normally carried at their acquisition cost minus accumulated depreciation under GAAP rules. The exception is land or property. Property is not to be depreciated. Under the conservatism principle, the value of assets on the balance sheet is often lower than the market value of the assets. This is because companies are not permitted to mark up the value of assets on the balance sheet. For example, if a company owns property and its value increases rather than decreases over time, the inc

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s the most useful to the average person. The Statement of Cash Flows addresses cash inflows and outflows, and would be particularly useful to a trade creditor or a banker considering whether or not one of these companies is likely to have the cash on hand when it is required to pay a current liability. The Income Statement has broader appeal. It would also be carefully examined by creditors, but its appeal is to individual investors, employees, and other interested third parties because it is easily understood. This understanding might be that of a sophisticated investor or a CPA, or it might be as basic an understanding of the rudiments of an Income Statement as a casual observer looking to see whether sales are up, and whether or not these three companies are still reporting a profit. There are certain ratios that can be performed on an Income Statement to evaluate changes from one reporting period to another, but this type of analysis does not need to be performed to get an overall impression of an organization's financial health from a quick review of its Income Statement. A prediction about Ford Motor Company. To some extent, Ford's sales will follow the general economic conditions worldwide. As economies expand, so d

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