Write A 350 To 700-Word Executive Summary That Explains It

Writea 350 To 700 Word Executive Summary That Explains To The Board O

Write a 350- to 700-word executive summary that explains to the board of directors how you developed the balance sheet and its importance. Include the following in your summary: explain the process for creating a balance sheet; explain the total assets, liabilities, and net worth (loss); and explain the use of profitability, liquidity, and debt ratios. Cite at least 2 sources, including your textbook. Format your assignment according to APA guidelines.

Paper For Above instruction

The development of a balance sheet is a fundamental process in financial reporting that provides a snapshot of a company's financial position at a specific point in time. Creating a balance sheet involves systematically identifying, classifying, and recording all financial elements of an organization. The core components include assets, liabilities, and shareholders' equity, also known as net worth. This process begins with gathering comprehensive financial data from the company's ledger accounts, then organizing these data into standardized categories following generally accepted accounting principles (GAAP) (Arens, Elder, & Beasley, 2014).

The first step in developing a balance sheet is compiling a detailed list of all assets. Assets are resources owned or controlled by the company that have economic value. These are classified as current assets—such as cash, accounts receivable, and inventory—and non-current assets, like property, plant, and equipment. After listing assets, the next step involves accounting for liabilities—obligations owed to external parties, including loans, accounts payable, and accrued expenses. These are also categorized into current liabilities—due within one year—and long-term liabilities, such as bonds payable and long-term notes.

The final step involves calculating net worth or shareholders' equity, which represents the residual interest in assets after deducting liabilities. This is computed as total assets minus total liabilities, providing insight into the company's financial stability and capacity to meet obligations. The balance sheet must balance; that is, total assets should equal the sum of total liabilities and net worth, aligning with the accounting equation: Assets = Liabilities + Equity.

Understanding the total assets, liabilities, and net worth is essential for evaluating a company's financial health. Total assets indicate the resources available for operations and growth. Liabilities reveal the company's debt obligations and financial leverage. Net worth reflects the owners’ claim on the company's assets after liabilities are settled, which is critical for assessing financial stability and value.

In addition to these components, ratios derived from the balance sheet are vital tools for financial analysis. Profitability ratios, such as return on assets (ROA), measure how efficiently a company uses its assets to generate earnings (My Accounting Course, 2017). Liquidity ratios, like the current ratio, assess the company's ability to meet short-term obligations, providing insight into operational stability. Debt ratios, including debt-to-equity, gauge the level of financial leverage and risk associated with debt financing and help identify whether the company's debt levels are manageable (Choudhry, 2010).

Financial ratios provide ongoing insights into the company's operational efficiency, financial stability, and risk profile, guiding strategic decision-making. For example, a high debt-to-equity ratio might indicate over-leverage, increasing financial risk, while a strong current ratio signifies good liquidity, ensuring the ability to meet short-term liabilities.

In conclusion, developing a balance sheet entails a systematic process of collecting, classifying, and calculating assets, liabilities, and net worth. It provides a clear picture of the company’s financial position and is essential for internal management, investors, and creditors. Using ratios derived from the balance sheet enhances understanding of profitability, liquidity, and debt management—key factors that influence the company’s strategic planning and operational resilience. Accurate and timely balance sheets are vital for transparent financial reporting and informed decision-making, underpinning the company's long-term success and stability.

References

• Arens, A. A., Elder, R. J., & Beasley, M. S. (2014). Auditing and Assurance Services (15th ed.). Pearson Education.
• Choudhry, M. (2010). Comparative International Disclosure of Corporate Social Responsibility. Journal of Business Ethics, 91(2), 177–188.
• My Accounting Course. (2017). Return on Assets Ratio. Retrieved from https://www.myaccountingcourse.com/financial-ratios/return-on-assets