Balance Sheet. The Horizontal and Vertical formats
The balance sheet represents the financial picture as it stands on one particular day, for example, December 31, 2004. Typical Manufacturing Company’s balance sheet not only includes the most recent year, but also the previous year. It lets us compare how the company worked in its most recent years. The balance sheet is divided into two sides: on the left are shown assets, on the right are shown liabilities and shareholders’ equity. Both sides are always in balance. In the assets column, accountants list all the goods and property owned as well as claims against others which are to be collected. The liabilities column contains all debts due to others. There are two formats of the balance sheet - the traditional horizontal format and the vertical format. A company can prepare its balance sheet in either of the two formats. The traditional horizontal format is no longer used in the UK and the USA but it is still the basic pattern in some Far Eastern countries. This layout emphasizes the balance between assets and claims. The horizontal format emphasizes the idea that Assets = Liabilities + Equity. Balance sheet data are most helpful when they are compared with information from the previous year. The vertical format takes exactly the same data (as in the horizontal format) but rearranges the assets and liabilities plus the owners’ equity in another way and emphasizes the idea that Assets - Liabilities =Equity. The vertical format is most widely used in all types of businesses and its form of presentation makes comparisons with other years easier. Balance sheet data are most helpful when they are compared with information from the previous year. The balance sheet begins by listing the assets that are easily converted into cash: cash on hand, receivables and inventory. They are called current assets. Next, the balance sheet lists other assets that have value but are more difficult to convert into cash, for example, buildings and equipment. These are called fixed or long-term assets. Since most long-term assets, except land, depreciate over time, the company must also include accumulated depreciation in this part of the calculation. Property, plant and equipment minus accumulated depreciation equals the current book value of property, plant and equipment. Read the text. Decide whether these statements are TRUE, FALSE or NOT STATED: Fill in the gaps with the words from the box Fill in the gaps with the words from the box Fill in the prepositions where necessary: Fill in the articles where necessary: Choose the correct form of the verb:
.
|