Personal Balance Sheet

But the founders were not concerned merely with balance sheets. They drew their inspiration from the gurgling of water, the perfume of damp earth, and every vegetable and mineral in the earth. Could health, personal beauty — yes, even universal brotherhood — be created by two dozen men of dynamic chemical genius They believed it could, By 1925, they had nursed food from arid lands, made fats and fuels from coal and water, and were dreaming of making copper out of clay. 

Professor Hoerlein, the man of many parts, was now reorganized by the defense into a "business" personality. Nevertheless, Hoerlein s and Mann s principal job in Degesch, according to the bylaws, was to approve the company s sales policy and the price and disposition of its products as recorded on the annual balance sheet. In some courts proof of these duties would have set up the... 

As described in step 1 above, you must know where you are presently before you can go somewhere else. Personal financial statements tell you where you are in your financial journey. Among the most pertinent financial statements are personal balance sheets, cashflow statements, and the development of a monthly budget. 

Assets are things of value that the business owns. Liabilities are amounts that the firm owes to others such as suppliers. For example, the amount owed on the purchase of a computer is a liability. Finally, owner s equity represents claims of fhe owner, wherein claims can increase by personal investments from oufside the business and by earning revenue as the result of conducting business. Equity that is accumulated from a successful business and kept by the firm is included in the retained earnings account. Table 9.5 shows the balance sheet for Harris Pharmacy. 

Activity ratios are measures of how effectively a company manages its assets. They are based on the assumption that there are proper relationships between a company s assets and the sales and income that the assets generate. Different methods are used to generate these ratios, and they depend on how a person wants to use the ratios. Most analysts compile average ratios from balance sheet data, which are end-of-year data. In this section and in the financial ratio example that follows, this method is used. 

A balance sheet is a snapshot of the financial state of an organization at single instant— normally the end of an organization s financial year. It shows the value of what the organization owns (the assets) and what it owes (the liabilities). To illustrate this in simple terms. Table 3.6 shows the personal balance sheet for an imaginaiy student. As is usual, the balance sheet also shows the position twelve months previously, for comparison purposes. 

Balanced sheet ratios are the comer stones of Financial Accounting and are concerned with the longer tem and external reqnirements of creditors, shareholders, prospective investors, inspector of taxes and persons outside the managanent as well as with the internal leqniranents of the management. 

To reiterate, a balance sheet is a snapshot of the financial condition of a person or organization at a specific point in time. While it shows the financial status at that instant, it does not indicate what financial transactions lead to the current situation. 

Two example balance sheets are used to illustrate the features and usefulness of balance sheets. The first is a hypothetical balance sheet for a young person s finances and the second is a hypothetical balance sheet for a construction company. The personal and business examples are intended to suggest the broad applicability of balance... 

This balance sheet, and balance sheets in general, are not as accurate as they may appear to be, particularly when line items are entered to the nearest cent. For consistency, accountants usually show all items to the nearest cent. Some line items such as the current balance of a checking account or the amount owed on an automobile loan, can be determined and stated, on any day, to the nearest cent. However, in general, the overall accuracy of a balance sheet is less than that because some values are estimates, such as the current market value of a condominium or other personal property. This inconsistency in a balance sheet is further complicated by the difficulty of getting all values to be simultaneous or coincident. 

Table 10.1 This hypothetical end-of-the-calendar-year balance sheet provides an estimate of a yoxmg person s net worth.

As is the case with the balance sheet, two example income statements are presented—the first applies to personal income and expenses and the second applies to a business. Later in this chapter, a second business income statement is used to explain the importance of the income statement for a professional services business. 

Finally, note that there is no obvious quantitative coimection between Table 10.3, the income statement, and Table 10.1, the balance sheet, even though they could be for the same hypothetical young person. The first applies to a point in time and the second to an interval of time. However, both are needed to understand the young person s financial situation. 

Table 10.4 follows the same general format as the example of personal income statement but applies to a hypothetical construction company. The hypothetical business for which the income statement was developed is for the same business in the calendar year for which Table 10.2, the balance sheet, was developed. One indication of the relationship between the balance sheet and the income statement is retained earnings of 252,755.21 in Table 10.2 and the identical retained earnings balance at the end of the year in Table 10.4. However, there are a few obvious connections between the construction company s balance sheet (Table 10.2) and its income statement (Table 10.4).

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