Question
What is a good response to the information below???? The purpose of a balance sheet is to summarize a company's assets, liabilities, and shareholders' equity
What is a good response to the information below????
The purpose of a balance sheet is to summarize a company's assets, liabilities, and shareholders' equity at a specific point in time. To elaborate, a balance sheet reveals the financial status of a business where it shows what an entity owns (assets) and how much it owes (liabilities), as well as the amount invested in the business (equity). Analysts then use the information demonstrated in the balance sheet to assess a company's liquidity and future cash flows. The text mentions ", This financial statement provides information about the nature and amounts of investments in enterprise resources, obligations to creditors, and the owners' equity in net resources. It, therefore, helps in predicting the amounts, timing, and uncertainty of future cash flows." Although the balance sheet provides useful information there are some limitations. For one, since most assets and liabilities in the balance sheet are reported as historical cost, the assets are unable to be recorded at relevant fair value. Another limitation is that companies use judgments and estimates to determine many of the items reported in the balance sheet rather than exact calculations. Lastly, the balance sheet is able to omit items of financial value that a company cannot record objectively. Even if that item is the company's most significant asset, if it's financially unmeasurable it has to be omitted from the balance sheet.
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