Balance Sheet

6 minutes
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Hello, welcome to this lecture My name is Justin light from think numbers. And in this lecture we're going to be talking about what is a balance sheet. So really a balance sheet, it's also known as a statement of financial position. And really, this is a statement that shows the company snapshot position at a point in time. Really, so the best way, the best analogy to really be thinking of a balance sheet, is it sort of like taking a literally a photo of a business at a point in time, and sort of remembering it at that point. Generally, balance sheets are produced at the end of a particular period, not during a period, so at the end of the month, or the end of the financial year.

And really, they're showing what, what is every net position at that point on the balance sheet. And so we've talked all about that the accounting equation previously we've talked about the assets, the liabilities and owner's equity. And really the balance sheet is looking at a majority of the items sitting within the accounting question with the exception of revenues and expenses. So everything else is included on the balance sheet. And you can see here in this example, we've got all of the cash that we've talked about accounts receivable, inventory, prepayment accounts, any kind of investment accounts, property, plant and equipment that the contra asset account for accumulated depreciation is the negative amount that credit balance that reduces the property plant accrue into its book value, any intangible assets and any kind of other assets. So you have all your assets, you have your, your current liabilities, so your accounts payable, we talked about some of the other payable accounts like any kind of accrued accounts like salaries payable or accrued wages interest payable taxes payable.

It's a long term accounts I've got here some, some bank loans they've got and some deferred taxes, we're not really gonna be talking about that in the scope of this course. And this is all reported as a non current liability, then you've got your share capital or capital stock retained earnings. And the way that you know that this balance sheet balances is the assets equal to liabilities plus owner's equity. Now, if you take your assets minus your liabilities, you get, you get an item, which is called your net assets. And your net assets amount should equal exactly what your equity is as well. So there's different ways to rearrange this formula.

So really, that is the balance sheet. Remember, it's a snapshot and a snapshot at point in time. It's generally the wording on a balance sheet. If you pick up any balance sheet it will say as at a point in time So, as always be written on there. And this is really just showing your book value of everything that is the future benefits to your business, any sacrifices that you or other parties, and as well as what's left over for the shareholders end profits through retained earnings, which we've talked about extensively over this course. And so if you think about it from the different stakeholders perspectives, who's interested in balance sheets?

Well, we talked a bit about investors investors certainly will be quite interested in looking at analyzing different aspects of the vouching more to understand the health of the business and whether they're going to get the kind of return that they expect management, there are certain managers who will be interested in the in the balance sheet. Not every single manager is some some managers will be more concerned with Profit and Loss items. Others will be held fully accountable to certain balances. Remember, I mentioned Previously about the, for example, an inventory balance. If you're a warehouse manager, you'd be very interested in that number plus, whatever the breakup of that number is. But then it the balance sheet comes down to certain functional managers who would be managing different accounts.

So if you're in charge of investments and making management and acquisition decisions, there may be aspects around the investment account that interests you. If you're in collections, you only really be interested in your cash receivable. If you're in the payables part of the business, then you're only really interested in the accounts payable. And so and if you're in Treasury Department, maybe some of the bank loans is coffee, party or focus. And if you're the MD of the company or senior management, obviously, there's like more of a holistic approach where you'd be interested in so different parties are interested in different information. If we then looking at customers customers may only really be interested in your back If if they really want to understand your financial position in more detail for a particular reason, and certainly the banks will be all across your, your balance sheet and want to know every bit of your exposure in terms of your debt to equity, your your profitability, which and your solvency and liquidity etc.

So the balance sheet is absolutely fundamental, every business in the world has one, you can literally just go on to any kind of onto Google onto any, any company's website that's publicly listed, and you should be able to quite easily get a balance sheet. Now pick out I would try to find some of your companies that you'd like and just download them and start to study them and you'll start to really recognize all of the elements that was talked about in this course. Alright, so in the next lecture, we're going to be talking about the profit and loss statement. We'll see this

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