Assignment 1- Accounting - Essay Example

In a balance sheet, the sum of all the liabilities and the equity of an organization should be equal to the assets; as all the assets would either be financed through taking up liabilities or providing equity to the stockholders. Therefore, Assets are the economic resources that are owned by an organization. They may be tangible in nature such as building, inventory, cash, accounts receivable etc., or intangible in nature such as good will. Broadly speaking, there are two kinds of assets; Fixed and Current Assets.

Currents assets are assets which can be easily converted into cash such as inventory and accounts receivable. Assets which cannot be easily converted into cash such as real estate, buildings are known as fixed assets. Liabilities are debt that is held by an organization. An organization may have taken up debt from its suppliers, or banks, or vendors and creditors. This section shows all the money that an organization has to pay off, in the short term or in the long terms. The third section, Equity, is another method of raising money, where shares are given to stockholders and money is taken from them for the purpose of the business.

Shares help the stockholders become part owners of the organization. Balance sheet provides information regarding the trends that are present related to an organization regarding the elements of the balance sheet. A comparative analysis of balance sheet items such as accounts receivable, accounts payable would help identify trends over the years regarding these assets and liabilities. Or are the cash reserves declining over the years; the investors might then look deeply into the matter to see the reason behind it.

In short, it provides the changing scenario of the organization over the years; in a profit and loss statement, the information is pertaining to that certain year only. Fixed Assets are a part of the Assets; they are those assets of the organization which cannot be easily converted into