Elements Of The Balance Sheet, Their Purposes, And How To Measure Them

A balance sheet is one of the main financial statements utilized by business owners and accountants. A balance sheet contains three basic elements that include equity, liabilities, and assets. There are two forms of assets that include noncurrent assets and current assets. Assets represent items owned by the company. Long term assets refers to properties that cannot be easily liquidated. They include land, machinery and equipment, and intangible assets. While current assets includes goods that can easily be liquidated. Liabilities are also divided into two. They include current and long-term liabilities. Current liabilities are duties that the company has to pay in a year while long term liabilities represents debts that takes more than one year to be paid. Equity on the other hand represents the company part that is owned by shareholders. Assets are calculated as equity plus liability. This formula can be used to compute other elements of a balance sheet (News. Morningstar, 2015).

Statement of equity change frequently referred to as retained earnings statement in U.S. gives details of modification in owners’ equity for an accounting time by presenting shareholders equity in reverse movement. It is a financial statement which presents shareholders’ equity accounts changes summary over the period of reporting. It reconciles the equity accounts opening balances with their closing balances. Shareholders’ equity movement in a period of accounting contains a number of elements that include net loss or profit in the accounting period entitled to shareholders. Decrease or increase in share capital reserves, shareholders dividend payments, losses and gains directly recognized in equity, changes effect in accounting policies, correction effect of previous period error (Accounting-Simplified, 2013).

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