off-balance-sheet financing

Examples of off-balance-sheet financing in the following topics:

• Being Aware of Off-Balance-Sheet Financing

  • Off-Balance-Sheet-Financing represents rights to use assets or obligations that are not reported on balance sheets to pay liabilities.
  • Off-Balance-Sheet-Financing is associated with debt that is not reported on a company's balance sheet.
  • An example of off-balance-sheet financing is an unconsolidated subsidiary.
  • It is important to consider these off-balance-sheet-financing arrangements because they have an immediate impact on a company's overall financial health.
  • Jeffrey Skilling is the former CEO of Enron, which was notorious for it's use of off-balance-sheet-financing.

• Uses of the Balance Sheet

  • The balance sheet of a business provides a snapshot of its financial status at a particular point in time.
  • The Balance Sheet is used for financial reporting and analysis as part of the suite of financial statements .
  • The results help to drive the regulatory balance sheet reporting obligations of the organization.
  • The balance sheet is one of the financial reports included in a company's annual report.
  • Give examples of how the balance sheet is used by internal and external users

• Defining the Balance Sheet

  • A balance sheet reports a company's financial position on a particular date.
  • That specific moment is the close of business on the date of the balance sheet.
  • A balance sheet is like a photograph; it captures the financial position of a company at a particular point in time.
  • The exact accounts on a balance sheet will differ by company and by industry.
  • State the purpose of the balance sheet and recognize what accounts appear on the balance sheet

• Components of the Balance Sheet

  • The balance sheet relationship is expressed as; Assets = Liabilities + Equity.
  • The balance sheet contains statements of assets, liabilities, and shareholders' equity.
  • The relationship of these items is expressed in the fundamental balance sheet equation:
  • How assets are supported, or financed, by a corresponding growth in payables, debt liabilities, and equity reveals a lot about a company's financial health.
  • Differentiate between the three balance sheet accounts of asset, liability and shareholder's equity

• Defining the Balance Sheet

  • The balance sheet is a summary of the financial balances of a company.
  • Of the four basic financial statements, the balance sheet is the only statement which applies to a single point in time of a business' calendar year.
  • A standard company balance sheet has three parts: assets, liabilities, and ownership equity.
  • Balance sheets are usually presented with assets in one section and liabilities and net worth in the other section with the two sections "balancing. "
  • This balance sheet shows the company's assets, liabilities, and shareholder equity.

• Limitations of the Balance Sheet

  • A balance sheet is often described as a "snapshot of a company's financial condition. " Of the four basic financial statements, the balance sheet is the only statement which applies to a single point in time of a business' calendar year.
  • Fixed assets are shown in the balance sheet at historical cost less depreciation up to date.
  • Depreciation affects the carrying value of an asset on the balance sheet.
  • Therefore, the balance sheet does not show true value of assets.
  • Different methods of depreciation affect the carrying value of an asset on balance sheets.

• Balance Sheets

  • A standard company balance sheet has three parts: assets, liabilities, and ownership equity.
  • We have two forms of balance sheet.
  • Individuals and small businesses tend to have simple balance sheets.
  • Large businesses also may prepare balance sheets for segments of their businesses.
  • Contingent liabilities, such as warranties, are noted in the footnotes to the balance sheet.

• Resource Cost Write-Off

  • The term write-off describes removing an asset whose value is zero and is no longer in use from the balance sheet.
  • An asset is written off the balance sheet by recording a journal entry.
  • The decrease in the asset and accumulated depletion accounts reduces the balance to zero and removes the account from the balance sheet.
  • A write-off journal entry removes an asset not in use and its related contra account (accumulated depletion) from the balance sheet.
  • An asset write-off removes an asset's cost off the balance sheet and expenses it on the income statement.

• Preparation of the Balance Sheet

  • Balance sheets are usually prepared at the close of an accounting period.
  • Liabilities are arranged on the balance sheet in order of how soon they must be repaid.
  • Any other obligations to creditors due within one year of the date of the balance sheet
  • Liabilities are arranged on the balance sheet in order of how soon they must be repaid.
  • This may include start up financing from relatives, banks, finance companies, or others.

• Relationships Between Statements

  • The income statement, specifically, net income reconciles the beginning (prior ending period) balance sheet to the current balance sheet.
  • The statement of shareholder's equity connects the income statement and the balance sheet.
  • The statement of cash flows shows the cash inflows and cash outflows from operating, investing, and financing activities.
  • A clean surplus occurs when all changes in the balance sheet are reconciled by the income statement.
  • That is, the net change in the balance sheet accounts will not equal net income.