Balance sheet Essay Example | Topics and Well Written Essays - 2500 words

Balance sheet - Essay Example Balance sheets are generally prepared by a company at the end of its financial year. The balance sheets are presented in either horizontal or in vertical form. All the items present in the balance sheet of a company are discussed in details in this study. The dual aspect of balance sheet and the application of balance sheet have also been mentioned in this study. The users of balance sheets include the company managers to help them in analysing the financial conditions of the company, the investors and shareholders to help them in their decision making process regarding investment in the organisation and all other stakeholders of the company. With the increasing trend of globalisation most of the companies are trying to explore business opportunities in different parts of the world. As a result of this they need to comply with the regulatory requirements of different nations of the world. However with the advent of International Financial Reporting Standards (IFRS) and International Accounting Standards (IAS), the accounting practices followed in different nations are converging to make the financial statements including balance sheets more comparable in nature. A comparison between the balance sheet formats followed by companies in US and UK has been discussed in this study. 2. Balance Sheet Items All the items of a balance sheet fall under two broad headings, namely â€Å"Assets† and â€Å"Liabilities†. The items falling under the categories of assets and liabilities have been discussed below: 2.1 Assets Assets which are possessed by a business concern are categorised into two types, namely, current assets and fixed assets. Fixed assets are considered to be the long term assets of the company and current assets are considered to be the short term assets of the company. All these assets of the company are valued and represented in the balance sheet of the company at its book value or historical costs of those assets that is the costs of the asset s when it was first bought by the company. This is known as the historic cost convention (Horner, 2012, p. 42). However, as an exception to this convention or rule, some of the assets like the buildings possessed by the company are re-valued at its market price and then represented in its balance sheet. Sometimes, assets like goodwill generated internally by the company, including the values o different kinds of brands acquired by the company over a period of time are not included in its balance sheet. It is so because of the difficulty in accurately measuring the value of these kinds of assets. Let us now discuss in details about the assets of a company. 2.1.1 Fixed Assets Long term assets or fixed assets possessed by a company are sometimes referred to as non-current assets of the company. Fixed assets generally comprises of those assets of the company which are utilized by it for conducting its various business activities and are there with the company for a long period of time. They are not meant for resale by the organisation. The fixed assets of the company help it to generate sales or revenues through its business processes over a long period of time. Generally the fixed assets are required to be depreciated along its lifetime (Stittle, & Wearing, 2008, p. 60). Fixed assets of an organisation can further be grouped together into three different categories. They are: a) Tangible