Financial Statements For Home Accounting

Many are daunted by the study of accounting. To make it less challenging, it is important to start from the most basic concepts-financial statements. There are four main financial statements: balance sheets, income statements, cash flow statements and statements of shareholders’ equity.

Let us discuss balance sheets. Balance sheets list down what a company owns and owes for a specific period. A balance sheet states information that pertains to a company’s assets, liabilities and shareholders’ equity.

Assets are the things, which the company owns. They must be of measured value. This means that these things can be sold and/or used by the company to produce goods and services that can be sold for value. This label includes physical property, like plants, trucks, equipment and inventory. It also embraces things that non-tangible but undeniably existing and of value, such as trademarks and patents. This also covers cash and investments.

Liabilities are amounts of money that a company should pay other parties. This can include all kinds of obligations. This also includes obligations to provide goods or services to customers in the future.

Lastly, shareholder’s equity, which is also often called capital or net worth, is the money that would be left if a company were to sell all of its assets and pay off all of its liabilities. The money that will be leftover properly belongs to the shareholders, or the proprietors of the company.

The balance sheet shows an equation comprised of the three aforementioned elements: assets must be equal to the sum of its liabilities and shareholders’ equity.