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Understanding “Balance Sheet” from Techies Mind

Posted on March 1st, 2008 by Sanjit Anand |Print This Post Print This Post |Email This Post Email This Post

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Do you know one of Key Financial Report aka Balance Sheet is a basically ‘position’ statement, which describes the financial position of assets & liabilities of

  • your company/firm
  • as on a particular date

If you take any accounting book, this can be best defined as "a statement of the financial position of an enterprise as at a given date, which exhibits assets, liabilities, capital, etc."

handWhy Balance Sheet Required?

Obvious question why this is required? the Only reason is because the the legal rules (Companies Act) enforce companies to publish such report.

  • A Balance Sheet as on the last day of the financial year
  • A Profit & Loss Account for the financial year.

In accounting world , balance sheet should reflect ‘true and fair view’ in term of shareholder equity .

Balnacesheet

hand Balance sheet - techies definition

Assets and Liabilities are continuously changing with Business activity. To understand the financial position of the Business, it is necessary to ‘FREEZE’ the values of financial components at a certain point in time. These values, or Balances, are used to construct a balance sheet which shows how the owner’s equity is represented by the various categories of assets and liabilities.

balancesheet

handDo this have any Structure?

Yes, If you see different accounting book, we will find two different form of Balance sheet,

  • Horizontal
  • Vertical

The only difference between these two are required to give the corresponding amounts for the preceding financial year (‘Comparatives’) for all the items shown in the balance sheet.

A typical Balance sheet can be best represented as:

Horizontal BS

This is based out of accounting equation, which I have discussed in one of old post :

Assets = Owner’s Equity + Outside Liabilities

A = OE + OL

in the world of double entry system, the rule of thumb is "In the double-entry accounting system, every transaction is recorded by equal amounts of debits and credits"

A (DEBIT)= OE + OL(CREDIT)

ACCOUNTING

If you analyze the above sheet in term of accounting equation , this can be best understood as:

Balancsheet

handIs there any limitation for Balance sheet?

Yes, there are (adopted from Jep Robertson Notes)

  • As most most assets and liabilities are based out of historical cost.
  • Judgments and estimates are used in determining many of the items.
  • The balance sheet does not report items that can not be objectively determined.
  • It does not report information regarding off-balance sheet financing.

handWhere is my Balance sheet report within Oracle

Balancesheet

Balance sheet reports in Oracle are one of the FSG report which need to fine tune base out of the customer requirement, and this can be executed from the report section within GL responsibility.

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Posted in Basic Accounting, JumpStart | 7 Comments »Email This Post Email This Post | Print This Post Print This Post

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7 Responses
  1. Understanding “Profit and Loss (P&L)” from Techies Mind Says:

    […] “Profit and Loss (P&L)” from Techies MindUnderstanding “Balance Sheet” from Techies MindA bit on IFRSOracle General Ledger IntegrationOrder Management(OM) Integration OptionsQuick notes : […]

  2. CDEX Says:

    When is it horizontal balance sheet recommended? and vertical? Focusing on shareholders which one is more appropriated?

  3. Sanjit Anand Says:

    Its depend on what is required by auditors.

    Moreover refering to accounting books , normally Vertical reports each amount on a financial statement as a percentage of another item.

    For example, the vertical analysis of the balance sheet means every amount on the balance sheet is restated to be a percentage of total assets. If inventory is $100,000 and total assets are $400,000 then inventory is presented as 25 ($100,000 divided by $400,000). If cash is $8,000 then it will be presented as 2 ($8,000 divided by $400,000). The total of the assets will now add up to 100.

    you should note that Vertical is commonly applied to the balance sheet and the income statement.

    Horizontal normally looks at amounts on the financial statements over the past years.

    Its purpose is to determine the increase or decrease that has taken place

    For example, the amount of cash reported on the balance sheet at December 31 of 2006, 2005, 2004, 2003, and 2002 will be expressed as a percentage of the December 31, 2002 amount. Horizontal analysis is also referred to as trend analysis.

    Horizontal analysis is commonly applied to the balance sheet, income statement, and statement of retained earnings.

    The only advantage is that from EBS, you can extract any format through FSG.I have seen at client side, there are number of format they are using for fiscal reoporting purpose, each format they identifying by there own name like
    Balance Sheet(Managment format)
    Balance Sheet(KPMG format)
    Balance Sheet(Schroders format)
    Balance Sheet(Delloite format)
    like wise …

    The more and less is that structure is differing but underline accounts are different.

  4. R12 Oracle Subledger Accounting :Oracle White Paper Says:

    […] will go directly to the general ledger without any subledger.These items will be linked to your balance sheet but not to your profit and loss […]

  5. Ahmad Says:

    Gr8 you are always ahead of all

  6. R12 Report Manager goes user-friendly | OracleApps Epicenter Says:

    […] your business need to drill down the Reporting for your financial report like Balance sheet ,P & L or Cash Flow then you can explore these options in EBS […]

  7. Sushil Says:

    IFRS is a good post on your blog…Nice work

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