Discuss M5 Proprietors' Assets, Liabilities, And Equities
Discuss-M5 Proprietors Assets, Liabilities & Equities L M Cash $40,000 $25,000 AR $15,000 $10,000 Inventory $105,000 $15,000 Land $60,000 $10,000 Plant and Equipment $400,000 $30,000 Less: Accumulated Depreciation -$150,000 -$5,000 Goodwill $10,000 Patent $0 $0 Total Assets $480,000 $85,000 AP $50,000 $15,000 Loan-L $100,000 Owners Equity $270,000 $70,000 Total Liabilities & Equity $420,000 $85,000
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The financial statement provided illustrates the proprietors' assets, liabilities, and equities of a business, presenting a snapshot of its financial position at a specific point in time. Analyzing these elements allows stakeholders to assess the company's liquidity, solvency, and overall financial health, which are fundamental for informed decision-making.
Assets are resources owned by the business, categorized here into current assets such as cash, accounts receivable (AR), and inventory, as well as non-current assets like land, plant and equipment, and intangible assets like goodwill and patents. Total assets for the business amount to $480,000. Notably, accumulated depreciation on plant and equipment reduces the book value of these assets, reflecting usage and wear over time. The liabilities consist of accounts payable ($50,000), representing short-term obligations, and a long-term loan of $100,000, indicating debt financing. Total liabilities sum to $150,000 when combining current and long-term obligations.
Owner's equity, amounting to $270,000, represents the residual claim on the assets after liabilities are deducted, reflecting the owners' investment and retained earnings. The balance sheet shows total liabilities and equity of $420,000, which seemingly indicates a discrepancy with total assets of $480,000—this could suggest missing or unaccounted items or perhaps the need for reclassification or adjustments. Overall, this financial snapshot helps in evaluating the company's ability to meet short-term obligations, invest in growth, and generate value for owners and creditors.
Financial analysis like this is essential for credit assessment, investment decisions, and strategic planning. For instance, the high value of plant and equipment points to significant investment in operational capacity, while current assets like cash and AR indicate liquidity levels. The liability structure reveals the dependence on external financing, which could impact future cash flows and financial stability. An effective management of assets, liabilities, and equity is crucial to ensure sustained business performance and growth.