The Balance Sheet and Its Analysis Chapter 5. Purpose and Use of a Balance Sheet A balance sheet is...
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Transcript of The Balance Sheet and Its Analysis Chapter 5. Purpose and Use of a Balance Sheet A balance sheet is...
![Page 1: The Balance Sheet and Its Analysis Chapter 5. Purpose and Use of a Balance Sheet A balance sheet is a systematic organization of everything “owned” and.](https://reader038.fdocuments.in/reader038/viewer/2022110213/56649e425503460f94b358a9/html5/thumbnails/1.jpg)
The Balance Sheet and Its Analysis
Chapter 5
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Purpose and Use of a Balance Sheet
A balance sheet is a systematic organization of everything “owned” and “owed” by a business or individual at a given time.
Assets – anything of value owned by the business or individual
Liability – any debt or other financial obligation
Net Worth – the amount the owners have invested in the business
![Page 3: The Balance Sheet and Its Analysis Chapter 5. Purpose and Use of a Balance Sheet A balance sheet is a systematic organization of everything “owned” and.](https://reader038.fdocuments.in/reader038/viewer/2022110213/56649e425503460f94b358a9/html5/thumbnails/3.jpg)
Balance Sheet Format
Assets Current Assets Noncurrent Assets
Liabilities Current Liabilities Noncurrent Liabilities
Owner’s Equity
![Page 4: The Balance Sheet and Its Analysis Chapter 5. Purpose and Use of a Balance Sheet A balance sheet is a systematic organization of everything “owned” and.](https://reader038.fdocuments.in/reader038/viewer/2022110213/56649e425503460f94b358a9/html5/thumbnails/4.jpg)
Asset Valuation and Related Problems
A cost basis balance sheet is required when following basic accounting principles. It values all assets using the cost, cost less
depreciation, or farm production cost methods. A market basis balance sheet would have all
assets valued at market value less estimated selling costs.
![Page 5: The Balance Sheet and Its Analysis Chapter 5. Purpose and Use of a Balance Sheet A balance sheet is a systematic organization of everything “owned” and.](https://reader038.fdocuments.in/reader038/viewer/2022110213/56649e425503460f94b358a9/html5/thumbnails/5.jpg)
Balance Sheet Example
Asset Section Liability Section Owner Equity Section
![Page 6: The Balance Sheet and Its Analysis Chapter 5. Purpose and Use of a Balance Sheet A balance sheet is a systematic organization of everything “owned” and.](https://reader038.fdocuments.in/reader038/viewer/2022110213/56649e425503460f94b358a9/html5/thumbnails/6.jpg)
Balance Sheet Analysis
Analyzing Liquidity Current Ratio = Current Asset Value/Current
Liability Value Working Capital = Current Assets – Current
Liabilities
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Balance Sheet Analysis
Analyzing Solvency Debt/Asset Ratio = Total Liabilities/Total
Assets Equity/Asset Ratio = Total Equity/Total Assets
Debt/Equity Ratio = Total Liabilities/Owner Equity
![Page 8: The Balance Sheet and Its Analysis Chapter 5. Purpose and Use of a Balance Sheet A balance sheet is a systematic organization of everything “owned” and.](https://reader038.fdocuments.in/reader038/viewer/2022110213/56649e425503460f94b358a9/html5/thumbnails/8.jpg)
Summary of Analysis
Measure Market Basis
Liquidity:
Current Ratio
Working Capital
1.27
$23,640
Solvency:
Debt/Asset Ratio
Equity/Asset Ratio
Debt/Equity Ratio
0.50
0.50
0.99
Ratios calculated from page76 -- Table 5-4