New frontier s e r v i c e s BALANCE SHEET. 2 new frontier s e r v i c e s TABLE OF CONTENTS 1.WHAT...

new frontier s e r v i c e s


BALANCE SHEET

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TABLE OF CONTENTS

1. WHAT IS A BALANCE SHEET?

2. WHAT IS THE USE OF A BS?

3. WHAT IS A BS COMPOSED OF?

4. DEFINITIONS

5. SAMPLE BS

6. MORE INFORMATION ON BS

7. REFERENCES

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1. WHAT IS A BALANCE SHEET?

A Balance Sheet (BS):

Illustrates the financial situation of an organization at a given time

Summarizes the actions carried out by the organization

Illustrates the profits/losses of a determinate period of time

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2. WHAT IS THE USE OF A BS?

Balance Sheets are needed to assess and manage a business

Balance Sheets:

Give the possibility of making informed decisions

Allow third parties, such as investors, creditors and shareholders to have a clear idea on the financial situation of the company

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3. WHAT IS A BS COMPOSED OF? (I)

The Balance sheet has three parts to it:

Assets

Liabilities

Shareholder’s Equity

These are divided into two columns:

Assets on the left

– Assets are what a company owns in order to carry out its activity (with monetary value)

Liabilities on the right

– Liabilities are resources that support the assets

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3. WHAT IS A BS COMPOSED OF? (II)

The outcomes of the two columns must balance each other; this is why it’s called a balance sheet; what the business owns must have been financed from somewhere

Assets

Current Assets(e.g. Cash,

Inventory)

Fixed Assets(e.g. Buildings,

Equipment)

Liabilities

Current Loans(e.g. Utility Bills, Rent

Payment) Long term Loans(e.g. Mortgage)

Owner’s Capital

Common Stock Profit/Loss

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4. DEFINITIONS (I)Assets

Current Assets These assets are turned into cash in a short period of time. An example can be

Inventory. Stock is sold and generates cash, which can then be invested in buying more stock

Fixed Assets These assets are necessary for the company, such as computers, buildings etc,

and will allow the company to carry out its activity and generate a profit

Liabilities

Current Loans These are debts that must be paid within 12 months

Long Term Loans These are debts that can be paid after 12 months

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Owner’s Capital Is an internal source of funding composed of two main parts:

– Common Stock: The initial investment in the company– Retained Earnings: These are the generated profits which were re-invested in

the company instead of being distributed

Is also known as the Net Worth– Net Worth = Liabilities – Assets

– You have a positive net worth when the Assets are higher than the Liabilities– Banks consider the Net Worth when giving loans to companies or individuals

because it gives an idea on the potential of returning the loan

4. DEFINITIONS (II)

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5. SAMPLE BS

Source: INVESTOPEDIA www.investopedia.com/study-guide/cfa-exam/level-1/financial-statements/cfa8.asp

Source: INVESTOPEDIA www.investopedia.com/study-guide/cfa-exam/level-1/financial-statements/cfa8.asp

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6. MORE INFORMATION AT:

www.allbusiness.com

www.smartbiz.com

www.pipex.co.uk

www.businesstown.com

www.smallbusinessnotes.com

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7. REFERENCES

BusinessTown.com. Available at: http://www.businesstown.com/accounting/basic-sheets.asp (Accessed the 05/11/10)

Investopedia ULC 2010. Available at: http://www.investopedia.com/study-guide/cfa-exam/level-1/financial-statements/cfa8.asp (Accessed the 15/11/10)

Investor Awareness 2010. Available at: www.investorawareness.com/glossary.html (Accessed the 05/10/10)

Moneyterms: Investment/finance glossary/explanations .Available at: http://moneyterms.co.uk/balance_sheet/ (Accessed the 05/11/10)

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Legal disclaimer: The sole responsibility for the content of this presentation lies with the authors. It does not necessarily reflect the opinion of the European Union. Neither the EACI nor the European Commission are responsible for any use that may be made of the information contained therein.

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