M1 A2 Instructor Response
M1 A2 Instructor Response
Response only needs to be 2 paragraphs with 1 reference:
Original Posting:
Part 1: Order of the income statement
Income Statement
Amount
Sales
Cost of goods sold
Gross profit
Operating Expenses
Selling expense
Administrative expenses
General Expenses
Other Revenues and expenses
EBITDA
Interest expenses
Tax
Depreciation
Net Income
Part 2: Classification of financial Statement
Financial Statement
Short-term assets
Long-term assets
Short-term liabilities
Long-term liabilities
Owner equity
Cash
Inventory
Accounts receivables
Plant and equipment
property
Notes payable
Accounts payable
Accruals
Mortgage
Retained earnings
paid in capital
Part 3
A balance sheet equation is a statement that shows the state of a business at a particular time by computing assets, liabilities, business capital and balancing income over expenditure (Balance Sheet, 2016). The equation is a crucial part of accounting as it forms the element for entire double entry accounting scheme.
The equation starts with assets. Assets are all the resources that companies use to achieve its goals (Riggs, 2007). Assets may be long term or short term. Short-term assets include cash either solid or liquid form, inventories, and account receivable. Long-term or fixed asset includes machinery, tools, vehicles and all other properties. In most cases, the fixed assets are not fully owned by the business. This suggests that a loan might have been taken to purchase a vehicle, a mortgage on a construction, or even used money from shareholders. All these loans are taken into consideration in the liability section of a balance sheet equation (Halpin & Senior, 2009).
Claims on business assets by the financial institution, other companies or people is called liability. It is fully guaranteed that a running business has a debt somewhere and ignoring this concept would lead to misleading business accounts (Consolidated Balance Sheet, “ n.d). Mortgage and loans are examples of long-term liability while debts in terms of notes payable, accounts and accruals are short-term liabilities.
The third part of the equation is equity. Capital also referred as equity is shareholders claim on the company properties. Money contributed by owner at the start of the business or shareholders for a proprietorship ticket is accounted for here (Riggs, 2007). Equity also accounts for returned earnings that are money held in the business to be reinvested.
The summation of claims by shareholders and claims by debtors gives total company assets.
Assets = Liabilities + Equity
References
The Balance Sheet. (2016).
Consolidated Balance Sheet. (n.d.). SpringerReference. doi:10.1007/springerreference_1074
Halpin, D. W., & Senior, B. A. (2009). Financial management and accounting fundamentals for construction. Hoboken, NJ: Wiley.
Riggs, H. E. (2007). Understanding the financial score. San Rafael, Calif.: Morgan & Claypool Publishers.
INSTRUCTOR QUESTION:
How does the statement of cash flows enhance the balance sheet?
NEED FOLLOW-UP RESPONSE:
Response only needs to be 2 paragraphs with 1 reference:
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