What is Balance Sheet to Management?
The rationale behind the use of balance sheet is to specify the financial affairs of the company as of a given period of time. It measures the assets, liabilities and the interest of the owner. The balance sheet should be presented accurately based on the economic condition of the company. The degree of this presentation relies on the assumptions and adherence to the generally accepted accounting principles (GAAP) that were consistently applied with the previous period.
The main role of the balance sheet is to point out the financial condition of the business. This should help the investors whether to put more investment or make the necessary withdrawal to avoid any adverse effect.
The balance sheet is helpful to management in making a loan or raising capital. The financial position is also a measure of management’s performance in line with the maximum use of the company’s assets to acquire income based on available resources.
The forms of balance sheet are classified into two; namely, customary or conventional form and financial position form. The former has two distinctions as account form and report form. Account form lists the assets on the left portion and the liabilities in the right portion. On the other hand, the report form lists the assets, liabilities and owner’s equity in descending way. The latter or financial position form, gives importance on working capital. Working capital is computed by deducting current assets from current liabilities.
Henceforth, the next time you see a balance sheet, you already have the idea of what balance sheet form was used.