Balance Sheets

Balance Sheets

Team B members discussed the week 3 chapters involving balance sheets, full disclosure, notes to financial statements, and financial analysis using ratios. Team B felt comfortable with the different portions of the chapters. Team B objective is to briefly outline the topics that we felt comfortable with and the one we struggled with. Team B members determined also how these topics relate to application in their fields. This paper will highlight the results of the discussion.

A balance sheet is a statement of the financial position of a business which states the assets and liabilities at a particular point of time. In other words, the balance sheet illustrates the business net worth (Kieso, Weygandt, & Warfield, 2010). All the accounts in the balance statement report are categorized either as assets or as a liability. The balance sheet shows the closing balance of these accounts on a particular date. It also provides information about the different types of investments, status of obligations to creditors, and the owner's equity (Kieso, Weygandt, & Warfield, 2010). There are some limits to the balance sheets. First, it only uses historical costs when listing assets and not the fair market value of it. Also it does not list some valuable assets to the company such as intellectual property (Kieso, Weygandt, & Warfield, 2010).

The full disclosure principle states "any future event that may or will occur, and that will have a material economic impact on the financial position of the business, should be disclosed to probable and potential readers of the statements. Such disclosures are most frequently made by footnotes" (Kieso, Weygandt, & Warfield, 2010).

Using notes is an important part of the illustration of financial statements because they give a clear explanation of why those items are presented in the body of the statements (Kieso, Weygandt, & Warfield, 2010). Notes to the financial statements are not required for the partnerships and sole proprietorships, but supplied upon request. Public corporations on the other hand are required to disclose all the information in a clear way to help a better decision making. Notes in this case provide the simplicity and the clarification of the items listed on the financial statements.

There are several categories of notes to the financial statements. The first category summarizes the accounting choices used by a company. These choices include whether the company uses the cash or the accrual method. Use (LIFO), (FIFO), or average cost for inventories. Use the straight line or the accumulated method for depreciations, and much more. All these accounting choices must be disclosed. The second category of notes explains the line items. Some line items provide only summary totals, for this reason notes provide a breakdown of the summary line items. The notes also include some items that do not meet