Having completed an Income Statement, how do I complete the Balance Sheet?
I need to determine the various ratios of a business. In order to do this i know that i need to complete an Income Statement as well as a Balance Sheet. I have completed the Income Statement but do not know how to do a Balance Sheet.
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There are three majors sections in a balance sheet into which your items will fall: Assets, Liabilities and Owners' Equity which can be classified as Shareholders' or Stockholders' Equity.
The Balance Sheet
corresponds to the end of the time period covered by the income statement.
The standard equation - making up the ratios you refer to is -
Assets= Liabilities + Owners' Equity( or Capital)
The Assets need to be subdivided to create a better picture so
- Current Assets (include cash, Accounts Receivable, Interest Receivable, Prepaid expenses- if there are any, etc),
- Property, Plant and Equipment
- Fixed or Long Term Assets (include Investments)
- Intangible Assets (if there are any)
- Other Assets
should be indicated.
Similarly for liabilities; they need to be subdivided
- Current liabilities (include Accounts Payable, Interest payable)
- Long-term Liabilities (or debts)
- Owners' Equity
Regarding the Owners' Equity which falls under this liabilities section, depending on the size of the company and the number of owners, it can also be classified as follows, but is not necessarily:
- Common stock
- Retained earnings
- Treasury Stock (if applicable)
The Balance Sheet is the summary; it is a
complete statement of all receipts and disbursements.
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