| Introduction to Balance Sheet |
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| Written by Sunil Tinani | |
| Sunday, 25 May 2008 | |
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Page 1 of 3
There are three primary and statutory
documents that report about the profitability and financial health of
a company – Balance Sheet, Profit and Loss Account, and Cash Flow
Statement.
A Balance Sheet is an important document because it reveals a snapshot of the company and goes far beyod the Profit and Loss Account – for example, a company may show excellent profits in its profit and loss account, but at the same time could be overburdened by the interest on debt that may not have been accounted for lest it reflect badly on the profits. The Balance Sheet comments on the solvency and liquidity of a business, and only a thorough reading of the Balance Sheet reveals what lies beneath all the hype and hoopla generated by a company. The Balance Sheet reports on the assets and liabilities of a business on a certain date, which is the end-date of the company's financial year. You have to keep in mind that the Balance Sheet is only a picture at the end of the company's financial year and it can be viewed only after it has been published – there may be events subsequent to the Balance Sheet date that have materially altered the company's fortune, and such events may not be contained in the Balance Sheet if they occurred after the date the Balance Sheet was sent into print or published.
What does a Balance Sheet contain?A Balance Sheet contains three important types of important data:
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