Carlos Albizu University Balance Sheet and Income Statement Discussion
Reply Principles of Finance Balance sheet Vs income statement Reply to each Peer about their post. Balance sheet Vs income statement Discussion Reply 1 Paola: Hi! While it is true that both the balance sheet and income statement serve equal purpose for an organization, would you be able to give specific application for each? For example, if I was to look into borrowing funds for a new venture, which statement will I require to give me a better understanding of this move is feasible or not, will it be the income statement or the balance sheet? Regards, Paolo Balance sheet Vs income statement Discussion Reply to Paola: This week’s discussion takes us to the interesting world of financial reporting and statements. These reports and statements are crucial, not only to show the current financial status of an organization, but more notably, to project and assess future financial planning steps. According to Melicher (2017), financial statements are governed and constructed by utilizing generally accepted accounting principles (GAAP), which are devised by the Financial Accounting Standards Board (FASB). This week, balance sheets and income statements are the focus of discussion. The balance sheet or financial snapshot is a time-sensitive report, usually quarterly or yearly, of a company’s financial situation which contains two (2) key elements: assets and liabilities (Melicher, 2017). Assets are composed of financial or physical objects owned by the organization such as cash or securities, while liabilities are the list of the organization’s debt or obligations (Melicher, 2017). Another key element to consider when talking about balance sheets is owner’s equity. Owners' equity is defined as the investment of the shareholders or owner of the organization, most of the time arises from the initial cash investment to start the business or procurement of an asset such as equipment or real estate. Owner’s equity is reflected on the balance sheet as the discrepancy between total assets and total liabilities of an organization (Melicher, 2017). On the other hand, the income statement, utilizing the accrual model, represents the revenues produced and expenses acquired by an organization over a specific accounting period which can be quarterly or annually (Melicher, 2017). In discussing the main difference between the balance sheet and income statement, Melicher (2017) stated, “Whereas the income statement reflects the firm's operations over time, the balance sheet is a snapshot at a point in time” (p. 393). The importance of a balance sheet and income statement in evaluating the overall performance and health of an organization cannot be understated. Businesses require these two reports to appropriately prioritize financial steps and identify areas of concern which can be addressed timely to avoid any major impacts business operations. In my opinion, one is no more important than the other as both reports serve different but significant purposes for any organization. Reference: Melicher, R., & Norton, A. (2017). Introduction to finance: Markets, investments, and financial management (16th ed.). John Wiley & Sons, Inc. Balance sheet Vs income statement Discussion Reply to Rylee: Hello Professor Armas and Class, This week we were asked to evaluate and discuss the purpose of balance sheets and income statements, and which one we perceive to be more valuable. Financial reports/statements can help executives make difficult decision effectively and efficiently (West Coast University, 2020). The reports/statements provide an overview of a business’s financial “health” and include three main statements; income statement, balance sheet, and statement of cash flow. Melicher (2017) states,“The balance sheet is a statement of a company's financial position as of a particular date, usually at the end of a quarter or year. Whereas the income statement reflects the firm's operations over time, the balance sheet is a snapshot at a point in time”. It is a statement of a company’s/businesses financial position and lists its assets, liabilities, and owner equity at a particular point in time. In a nutshell, the balance sheet illustrates the company’s/businesses net worth (Ward, 2020). It can also show details from previous years which allows comparison, helps keep track of performance, and will shed light on ways to build the companies/businesses finances as well as where improvement may be needed. The balance sheet can also be used to determine how a company/business can meet their financial obligations. Another important statement is the income statement. It shows how much a company has made in a specified period of time, whether it be last year, last quarter, or last month (Kimball, 2016). It includes the amount of money the company/business brought in and subtracted by the expenses such as cost of supplies, pay roll, building rental etc…When all deductions are made, the result is the company/businesses net income or net last for the specified time period. Both reports are important, especially when banks are trying to determine if the company/business ears enough to repay a requested loan, they verify profit, and highlights trouble areas (Kimball, 2016). Both documents allow investors to learn about the business/company and should be reviewed together. When comparing both documents, I believe that the balance sheet is the most important document when illustrating the health of a businesses. References: Kimball, T. (2016, September 29). Types of Different Business Financial Statements. Retrieved June 18, 2020, from https://yourbusiness.azcentral.com/types-different... Melicher, R., & Norton, A. (2017). Introduction to finance: Markets, investments, and financial management (16th ed.). John Wiley & Sons, Inc. Ward, S. (2020, April 30). What Exactly Is a Balance Sheet? Retrieved June 18, 2020, fromhttps://www.thebalancesmb.com/balance-sheet-definition-2946947 West Coast University. (2020). ACC 150: Financing and investing. https://learn.westcoastuniversity.edu/bbcswebdav/c... ER/Presentations%20and%20Rise%20Files/wcu-acc-150-financing-and-investing/wcu-acc-150-financing-and-investing.html#/lessons/RYq3hMsZPtkYBDbDYZRtI6qTLy_ AOdB