Application Of Financial Statement

Submitted By sgtsausage2
Words: 1026
Pages: 5

Assignment 1: Application of Financial Statement

During the past eight weeks I have vastly expanded my knowledge of financial accounting, and the practices that are used in accounting in general. In this paper I will be discussing the balance sheet and how the use of it can be applied to my everyday life. I will also explain how I can apply my new skills to my current position at my place of employment.
Select either the balance sheet or income statement and explain how the use of it may be applied to your everyday life.
For this topic I have decided to select the balance sheet and how the use of it could be applied to my everyday life. The balance sheet is defined as “A financial statement that summarizes a company's assets, liabilities and shareholders' equity at a specific point in time. These three balance sheet segments give investors an idea as to what the company owns and owes, as well as the amount invested by the shareholders” (www.investopedia.com). Although I do not currently own a company, I could use the information from the balance sheet as a means of tracking my own assets and liabilities. As I make purchases I am increasing my assets if the purchases are made with cash. If I were to purchase on credit then I am increasing my liabilities by going into debt, even if it is only short term. I am basically doing the same thing that a company would do on a balance sheet. The difference is that I make almost all of my purchases with my debit card, so the bank tracks my balance sheet for me instead of me having to do it on my own separately. When I receive a paycheck, that paycheck is direct deposited into my bank account which would also go on my balance sheet, it could be considered revenue. The reviewing of my bank account is similar to the way a company would review their balance sheet. I track how much I spend and what I spend it on. I also can see if my liabilities are increasing or decreasing based on how much credit card debt I currently have. And I am able to view my assets by reviewing my mortgage account, and by reviewing what tangible items I have purchased at any given time. Everything balances out just as it would on a balance sheet, and at the end of the month I go through my monthly spending to see how much I spent, what I spent it on, and how I may want to adjust my budget for the next month. I also like to review the balances on my assets and liabilities. I do this by reviewing how much I owe on my mortgage and vehicles, as well as by reviewing any and all credit card debt. Using the same concept selected above, discuss how a business manager may benefit from an understanding of this statement. A business manager would benefit from an understanding of this statement due to the fact that he would be able to track the company’s assets, liabilities, and stockholder’s equity at any given point in time. If the owner of the company were to want this information immediately, the business manager would be able to pull up his balance sheet and give accurate information to the owner instantaneously, if the balance sheet is current. It would also be a useful tool to have when looking at quarterly reports and tracking net worth. A business manager would also benefit by being able to use the balance sheet to track who the company owes money to, and also who they should pay first. Sandeep Sud owns a company called SANCO, and he recommends to “Pay your creditors - especially suppliers - as soon as possible. This not only helps your balance sheet but also improves your bargaining position” (www.businesslink.gov). Being able to improve your bargaining position with other companies, especially suppliers, is crucial when doing business. It could save a business manager a lot of money and time if he/she is good at bargaining. Discuss how your