Every business will have a balance sheet, as a standard financial reporting tool. This is used by a company as a high level view of the monetary condition of a business at a specific period in time, to enable the owners or the managers of the business to have clear visibility of profit performance. The balance sheet records the activities of a business and the structure of a balance sheet falls into two separate groups. These groups are the activities that make a profit and the activities that make a loss, an example of making a profit a profit-making activity is sales and making a loss is expenses that are needed to run a business, otherwise known as liabilities. The balance sheet will record all financial activities and these will include financing and investing activities, distributions from profit to the share holders, investments assets and depreciation and the write off of assets, either through end of life, theft or that they are no longer operational.
Profit creating activities are reported within the income statement; financing and investing activities are found within the statement of money flows. In other words, two totally different money statements are prepared for the two totally different types of transactions. The statement of cash flows reports the increase or decrease of money from profit during the year.
The balance sheet represents the balances, amounts, company’s assets, other investments and liabilities at a particular point in time. The word balance has completely different meanings at totally different times. Because it’s used in the term balance sheet, it refers back to the balance of the two opposite sides of a business, total assets on one aspect and total liabilities on the other. The balances of an account which can be recorded against assets, liabilities operating expenses, wages and accounts receivable, refer to the value of each line item and this value will go through periods of increasing and decreasing value and these values will be counter balanced within the balance sheet itself. This report should be easy to follow and have suitable descriptions of the items listed.
A business will usually schedule this report based on it requirements for either each month, each quarter, half yearly and yearly. On the yearly report this is usually prepared to reflect the operational state at the close of business on the last day of the profit period. Accountants will prepare a balance sheet at any time that it is requested, they will just need access to all of the financial information to prepare the report.