A statement of financial position, also known as a balance sheet, is a financial document which provides an overview of an entity's finances at a given

point in time. -www.wisegeek.comOne covers the assets, everything owned by the person or company, including real estate, cash in hand, contents of bank accounts, and so forth. The other side includes the liabilities, funds owed. A statement of financial position usually breaks these sections up into several categories for ease of reference, so that people can quickly look up a topic of particular interest, such as accounts payable or overdue loans.

Balance Sheet Current assets are reported separately from noncurrent assets Current liabilities are reported separately from noncurrent liabilities

Current assets --> Assets that are expected to be realized --> within a year or normal operating cycle, whichever is longer

Current liabilities --> Liabilities that are expected to liquidate --> within a year or normal operating cycle, whichever is longer

Current Assets 5-02.1: Cash and cash items 5-02.2: Marketable securities 5-02.3: Accounts and notes receivable 5-02.4: Allowances for doubtful accounts and notes receivable 5-02.5: Unearned income 5-02.6: Inventories

5-02.7: Prepaid expenses 5-02.8: Other current assets 5-02.9: Total current assets

Noncurrent assets 5-02.12: Other investments 5-02.13: Property, plant and equipment 5-02.14: Accumulated depreciation 5-02.15: Intangible assets 5-02.16: Amortization of intangible assets 5-02.17: Other assets 5-02.18: Total assets

Current liabilities 5-02.19: Accounts and notes payable 5-02.20: Other current liabilities 5-02.21: Total current liabilities

Noncurrent liabilities 5-02.22: Bonds, mortgages and other long-term debt 5-02.24: Other liabilities 5-02.25: Commitments and contingent liabilities

Stockholders' equity 5-02.27: Redeemable preferred stocks

5-02.28: Non-redeemable preferred stocks 5-02.29: Common stocks 5-02.30: Other stockholders' equity 5-02.31: Noncontrolling interests 5-02.32: Total liabilities and equity http://accountinginfo.com

The basic accounting equation, Assets = Claims, governs the format of the balance sheet. In the account form, assets appear on the left, claims on the right. In the report form, assets appear on the top, claims on the bottom http://financial-education.com The accounting equation (or basic accounting equation) offers us a simple way to understand how these three amounts relate to each other. The accounting equation for a sole proprietorship is: Assets = Liabilities + Owners Equity

The accounting equation for a corporation is:

Assets = Liabilities + Stockholders Equity

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Common stock or ordinary shares Common stock, as it is known in the United States, or ordinary shares, according to British terminology, is the most important form of equity investment. An owner of common stock is part owner of the enterprise and is entitled to vote on certain important matters, including the selection of directors. Common stock holders benefit most from improvement in the firm's business prospects. But they have a claim on the firm's income and assets only after all creditors and all preferred stock holders receive

payment. Some firms have more than one class of common stock, in which case the stock of one class may be entitled to greater voting rights, or to larger dividends, than stock of another class. This is often the case with family owned firms which sell stock to the public in a way that enables the family to maintain control through its ownership of stock with superior voting rights.

Preferred stock

Also called preference shares, preferred stock is more akin to bonds than to common stock. Like bonds, preferred stock offers specified payments on specified dates. Preferred stock appeals to issuers because the dividend remains constant for as long as the stock is outstanding, which may be in perpetuity. Some investors favour preferred stock over bonds because the periodic payments are formally considered dividends rather than interest payments, and may therefore offer tax advantages. The issuer is obliged to pay dividends to preferred stock holders before paying dividends to common shareholders. if the preferred stock is cumulative, unpaid dividends may accrue until preferred stock holders have received full payment. In the case of non cumulative preferred stock, preferred stock holders may be able to impose significant restrictions on the firm in the event of a missed dividend.

Convertible preferred stock

This may be converted into common stock under certain conditions, usually at a predetermined price or within a predetermined time period. Conversion is always at the owner's option and cannot be required by the issuer. Convertible preferred stock is similar to convertible bonds.

Warrants

Warrants offer the holder the opportunity to purchase a firm's common stock during a specified time period in future, at a predetermined price, known as the exercise price or strike price. The tangible value of a warrant is the market price of the stock less the strike price. If the tangible value when the warrants are exercisable is zero or less the warrants have no value, as the stock can be acquired more cheaply in the open market. A firm may sell warrants directly, but more often they are incorporated into other securities, such as preferred stock or bonds. Warrants are created and sold by the firm that issues the underlying stock. In a rights offering, warrants are allotted to existing stock holders in proportion to their current holdings. If all shareholders subscribe to the offering the firm's total capital will increase, but each stock holder's proportionate ownership will not change. The stock holder is free not to

subscribe to the offering or to pass the rights to others. In the UK a stock holder chooses not to subscribe by filing a letter of renunciation with the issuer.

Issuing shares

Few businesses begin with freely traded shares. Most are initially owned by an individual, a small group of investors (such as partners or venture capitalists) or an established firm which has created a new subsidiary. In most countries, a firm may not sell shares to the public until it has been in operation for a specified period. Some countries bar firms from selling shares until their business is profitable, a requirement that can make it difficult for young firms to raise capital.

Flotation

Flotation, also known as an initial public offering (ipo), is the process by which a firm sells its shares to the public. This may occur for a number of reasons. The firm may require additional capital to take advantage of new opportunities. Some of the firm's original investors may want it to buy them out so they can put their money to work elsewhere. The firm may also wish to use shares to compensate employees, and a public share listing makes this easier as the value of the shares is freely established in the market place. The flotation need not involve all or even the majority of the firm's shares. Table 7.3 shows that the annual value of Ipos in the United States grew sevenfold during the 199os before collapsing in 2ool. The value of Ipos in the UK, although much smaller, has been less volatile.

Some of the biggest flotations in recent years have involved the privatisation of government owned enterprises, such as Deutsche Telekom in Germany and YPF, a petroleum company, in Argentina. Such large firms are often floated in a series of share issues rather than all at once, because of uncertainty about demand for the shares. According to the OECD, privatisations raised nearly $6oo billion between 1996 and 2000, much of which was financed by issuance of shares. Another source of large flotations is the spin off of parts of existing firms. In such a case, the parent firm bundles certain assets, debt obligations and businesses into the new entity, which initially has the same shareholders as the parent. Among the largest spin offs in recent years have been Lucent Technologies, formerly part Of AT&T, and Delphi, the component manufacturing unit of General Motors Corp. A third source of large flotations has been decisions by the managers of established companies with privately traded shares to allow limited public ownership, as in the case of ups, an American package delivery company.

Private offering

Rather than selling its shares to the public, a firm may raise equity through a private offering. only sophisticated investors, such as moneymanagement firms and wealthy individuals, are normally allowed to purchase shares in a private offering, as disclosures about the risks involved are fewer than in a public offering. Shares purchased in a private offering are common equity and are therefore entitled to vote on corporate matters and to receive a dividend, but they usually cannot be resold in the public markets for a specified period of time.

Secondary offering

A secondary offering occurs when a firm whose shares are already traded publicly sells additional shares to the public called a follow on offering in the UK or when one or more investors holding a large proportion of a firm's shares offers those shares for sale to the public. Firms that already have publicly traded shares may float additional shares to increase their total capital. If this leaves existing shareholders owning smaller proportions of the firm than they owned previously, it is said to dilute their holdings. if the secondary offering involves shares owned by investors, the proceeds of a secondary offering go to the investors whose shares are sold, not to the issuer. Table 7.4 provides data on the extent of secondary offerings in US markets.

The flotation process

Before issuing shares to the public, a firm must engage accountants to prepare several years of financial statements according to the Generally Accepted Accounting Principles, Or GAAP, of the country where it wishes to issue. In many countries, the offering must be registered with the securities regulator before it can be marketed to the public. The regulator does not judge whether the shares represent a sound investment, but only whether the firm has complied with the legal requirements for securities issuance. The firm incorporates the mandatory financial reports into a document known as the listing particulars or prospectus, which is intended to provide prospective investors with detailed information about the firm's past performance and future prospects. in the United States, a prospectus circulated before completion of the registration period is called a red herring, as its front page bears a red border to highlight the fact that the regulator has not yet approved the issuance of the shares. Mortgage22.com

Assets of a company having physical existence and expected to be used for a period exceeding one year form a part of property, plant and equipment. Property, plant and equipment are alternatively referred to as tangible fixed assets.

Important components of property, plant and equipment include:

Land and land improvements Buildings Plant and machinery Vehicles Equipment, etc. Expenditure incurred on purchase of property, plant and equipment is called capital expenditure. Such an expenditure is capitalized which means it is recorded on the balance sheet instead of writing it off against revenues on income statement. The capitalized cost of an item of property, plant and equipment include:

The invoice price of the plant paid to the supplier. The freight paid to bring the plant to the installation site. The installation fees paid to the engineers. The cost incurred on testing the plant minus related proceeds, etc. Certain assets have unlimited useful life such as land and they are not depreciated. Other assets such as buildings, vehicles, etc. loose their value over their useful life and are called depreciable fixed assets.

Since fixed assets are used for a period of more than one year, we must have a mechanism to expense out the cost of the fixed assets on some systematic basis. This process of allocation of fixed asset cost over period is called depreciation.

Each fixed asset has some useful life, for example say 2 year in case of a computer. Most assets are scraped but some may have certain value at the end of their life, for example we may expect to get

considerable proceeds from selling a vehicle at the end of its useful life, this value at the end of the useful life is of an asset is called its residual value, salvage value or scrap value. We only depreciate that portion of cost which exceeds the salvage value. In other words the depreciable amount is cost minus salvage value.

The depreciation figure appears on the income statement as an expense. For the balance sheet purpose, we maintain a contra-asset account called accumulated depreciation account. As the name suggests, this account holds all the depreciation charged on a particular asset since its acquisition. The fixed assets are presented on balance sheet on cost less accumulated depreciation basis. This cost less accumulated depreciation figure is called net fixed assets.

A resource with economic value that an individual, corporation or country owns or controls with the expectation that it will provide future benefit.

Assets are bought to increase the value of a firm or benefit the firm's operations. You can think of an asset as something that can generate cash flow, regardless of whether it's a company's manufacturing equipment or an individual's rental apartment.

2. In the context of accounting, assets are either current or fixed (non-current). Current means that the asset will be consumed within one year. Generally, this includes things like cash, accounts receivable and inventory. Fixed assets are those that are expected to keep providing benefit for more than one year, such as equipment, buildings and real estate.

A company's legal debts or obligations that arise during the course of business operations. Liabilities are settled over time through the transfer of economic benefits including money, goods or services.

1. A stock or any other security representing an ownership interest.

2. On a company's balance sheet, the amount of the funds contributed by the owners (the stockholders) plus the retained earnings (or losses). Also referred to as "shareholders' equity".

3. In the context of margin trading, the value of securities in a margin account minus what has been borrowed from the brokerage.

4. In the context of real estate, the difference between the current market value of the property and the amount the owner still owes on the mortgage. It is the amount that the owner would receive after selling a property and paying off the mortgage.

5. In terms of investment strategies, equity (stocks) is one of the principal asset classes. The other two are fixed-income (bonds) and cash/cash-equivalents. These are used in asset allocation planning to structure a desired risk and return profile for an investor's portfolio. Investopedia explains Equity The term's meaning depends very much on the context. In finance, in general, you can think of equity as ownership in any asset after all debts associated with that asset are paid off. For example, a car or house with no outstanding debt is considered the owner's equity because he or she can readily sell the item for cash. Stocks are equity because they represent ownership in a company.

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