July 29, 2012
A balance sheet is used by accounting departments to show a company their financial position at the end of a specified date. It is often called a snapshot of a company’s financial position at a given moment. It gives the reader of the document a clear picture of all transactions that have been posted by that company as of a specific date. When accountants prepare a balance sheet they list the company’s assets at the time. Assets are things the company owns, and resources they have that can be given a dollar value. These can include prepaid rent, advertising and legal fees. These statements are used by business, its investors and creditors to determine how well the company is doing. Creditors may use this information to determine whether or not the company is able to afford more credit or loans. They will look at the company’s liabilities to determine their ability to repay the loan or credit. Liabilities are monies a company owes to creditors for past transactions. A corporation uses their assets and liabilities to determine the stockholders equity. To determine the stockholder’s equity the accountant subtracts the corporation’s liabilities from its assets. This is also sometimes referred to as the book value of the company. (Accounting Coach, 2012). An income statement is another type of report that accountants use to show a company how they are doing financially. An income statement, which is also referred to as a profit and loss statement, shows the reader the revenues, gains, expenses, losses, net income and other totals during a specified period of time. This time period is clearly stated at the top of the profit and loss statement. It is a general policy among accountants to provide the company with statements from previous periods so the company can compare the latest statement to previous statements. This is called a comparative statement because it shows more than the...