Balance Sheet:
The balance sheet shows what the business has (assets) and what the business owesagainst those assets (liabilities). The difference between the assets and the liabilities shows the networth of the business. The net worth of the business is important in that it is a measurement of thetime the business is expected to stay in financial power. The balance sheet also provides the businesswith information on how best it is able to pay its debts. Underwriters also use the information in the balance sheet (working capital) to assess the business' ability to finance its operations. The balancesheet assists the managers of businesses in making decisions regarding purchasing of equipment for the business. Business managers depend on the balance sheet to analyze whether buying certainequipment on debt is the right move for the business at that time. Business managers need the balance sheet so as to decide the best source of credit for the business at that time. The balance sheetshows the accounting equation in a physical representation. The balance sheet also shows the owner'sequity for example, it shows the value of the stock and the number of shares outstanding. The balance sheet is also used by the government agencies to make sure that the business is complyingwith the set laws. It also provides information to any potential lenders of the business on the creditworthiness of the business. On completion of an accurate balance sheet for your business, you will beable to determine:
The productivity and solvency of the business.
The amount of capital retained in the business.
How fast or slow assets can be converted to capital.
The general financial state of the business at a specific point in time