Apply These 6 Secret Techniques to Prepare Balance a Sheet Homework

Elements involved when you prepare a balance sheet homework assignment

The balance sheet in accounting, sometimes known as the income statement analysis of financial position, summarizes the financial position of a company at a particular point in time.

A standard balance sheet for a company has three parts:

  1. Assets: Assets fall into one of two broad categories
    1. Current assets: Assets that can be turned into cash within one year or less. These could include hard currency, Treasury Bills, marketable securities, accounts receivable and inventory among other things.
    2. Non-current assets: Long term assets that cannot be converted to cash quickly including long-term investments and fixed assets like land, buildings and equipment
  2. Liabilities: Liabilities are any money that a company owes to outside parties and also fall into two categories:
    1. Current liabilities are those that are due within one year
    2. Long-term liabilities are those that are due beyond one year
  3. Ownership equity: Also known as shareholders’ equity, net assets or net worth, this is the total assets of a company minus its total liabilities

Typically assets are listed in order of their liquidity or the speed with which they can be converted to cash. Liabilities are listed in order of their due date. When you prepare a balance sheet it gives a financial picture of a company only for that particular date. Analysis of balance sheet ratios provides an idea of how healthy a company is.

Prepare a balance sheet homework assignment or inventory report using these techniques and suggestions.

Here are some useful techniques and suggestions that can be used when preparing balance sheet homework:

  1. Intangible assets such as intellectual property and goodwill are sometimes included under long-term assets on the balance sheet but usually only when they are acquired from outside the company and not developed in-house. Value of intangible assets may be hugely understated or overstated.
  2. Use common size ratios from the balance sheet to put data into context. Total assets are 100 percent. Individual assets and liabilities percentage is calculated by dividing the asset/liability amount by the amount of total assets. In this way you can see what percentage of the total asset each individual asset and liability is.
  3. Help determine the financial strength of a company using the current ratio. The current ratio is the number of times the current assets of a company exceed its current liabilities. It is an indication of the solvency of a company and is calculated by dividing current assets by current liabilities. Current Ratio = Total current assets / Total current liabilities
  4. Calculating the quick ratio, also known as the acid test ratio, is a fast way to find out if a company can meet its obligations even under adverse conditions. The quick ratio is calculated by subtracting total inventory from total current assets and dividing the results by the total current liabilities. The formula is written as follows: Quick Ratio = (Total Current Assets – Total Inventory) / Total Current Liabilities
  5. To find out how dependent a company is on debt financing as compared to owner’s equity you can use the debt-to-worth ratio. It shows how much of a company is owned and how much is owed. Debt-to-Worth Ratio = Total Liabilities / Net Worth
  6. Working capital of a company is the difference between the company’s current assets and its current liabilities. Working Capital = Total Current Assets – Total Current Liabilities. Lenders use working capital to evaluate a company’s ability to survive hard times

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Apply These 6 Secret Techniques to Prepare Balance a Sheet Homework
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