Application of Financial Statement

Application of Financial Statement

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Financial Accounting 557

Dr. Lori Perez

November 26, 2011

Select either the balance sheet or income statement and explain how the use of it may be applied to your everyday life.

Balance sheet is a statement of a company's or individuals' financial condition at a specific moment in time (usually the end of month or end of year) (Weygandgt/Kimmel/Kieso, 2010). This statement reports assets, liabilities, and stockholder's equity of a company and the Income sheet is used to report a company's profitability over a specific period of time; the reporting of revenue and expenses will ultimately help keep up with receivables and payables resulting in net income or net loss during a specific period of time. However, creditors and investors will use both the balance sheet and income sheet in determine a company's financial standing before any credit/loans are given or if an investor decides to invest with the corporation. However, in determining which method a consumer can use and apply it in their daily lives I will select the balance sheet. The balance statement is simple in its use as it helps one keep up with their income and individual assets and liabilities. The balance sheet that is made up of assets, which a company or individual owns and liabilities which mainly includes any debts and net equity (Net Equity=Total Assets-Total Liabilities). Whether or not a balance sheet is kept, it is very vital to keep up with assets and liabilities to keep up with net income by written documentation of debts and credits.

I began keeping up with my own balance sheets when I was able to secure a part time job at the age of sixteen. I had my first bank account and with it came a check book and check registry. Keeping up with my net income and debits became challenging for me in the beginning. However, I was able to keep a record of my pay checks, and any financial obligations I had at the time. Those obligations included gas credit card, a standard credit card to use for emergencies, car payments, entertainment and basically any bank withdrawals. Each time I got paid, I would write it down and any transactions would be debited from the total cash shown in my account. Often times I would not write my transactions down and that left me in the "red" sort to speak with negative balances. I learned very quickly to write everything down and it ultimately brought structure to my finances and allowed me to even save a portion of my net income. I do believe that a balance sheet is not only important to a corporation but also very important to any individual trying to balance their finances