The 3 Brothers Essay

880 WordsJun 12, 20124 Pages
The Financial Statement In Brief: The Balance Sheet The balance sheet, prepared as of a specific date, records the categories and amounts of assets employed by the business (i.e., the resources committed) and the offsetting liabilities incurred to lenders and owners (i.e., the funds obtained). Also called the statement of financial condition or statement of financial position, it must always balance. By definition, the recorded value of the total assets invested in the business at any point in time must be matched precisely by the recorded liabilities and owners’ equity supporting these assets. Liabilities are specific obligations that represent claims against the assets of the business, ranking ahead of the owners in repayment priority. In contrast, the recorded shareholders’ equity in effect represents a residual claim of the owners on the remaining assets after all liabilities have been subtracted. The major categories of assets, or resources committed, are: • Current assets (items that turn over in the normal course of business within a relatively short period of time, such as cash, marketable securities, accounts receivable, and inventories). • Fixed assets (such as land, mineral resources, buildings, machinery, and vehicles), all of which are used over a longer time frame. • Other assets, such as deposits, patents, and various intangibles, including goodwill that arose from an acquisition. Major sources of the funds obtained are: • Current liabilities, which are obligations to vendors, tax authorities, employees, and lenders due within one year or less. • Long-term liabilities, which are a variety of debt instruments repayable beyond one year, such as bonds, loans, and mortgages. • Owners’ (shareholders’) equity, which represents the recorded net amount of funds contributed by various classes of owners of the business as well as the accumulated

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