As one of the most basic of all accounting documents, the balance sheet is simply a quick and easy to read summary of the financial condition of an individual, company, non profit organization, or a government department or agency. The focus of the balance sheet is to provide a snapshot of all current assets and liabilities of the entity, with an eye to understanding the net worth of the entity.
Sometimes referred to as a statement of condition, the structure of a balance sheet is typically very simple. The most basic balance sheet tends to group assets under specific headers on the left side of the document. Assets are identified by name in one column, with a second column immediately following that contains the value of the asset. Often there is a group sub-total, then a grand total of assets at the end of the column. The structure for liabilities follows the same basic pattern. Liabilities are grouped on the right side of the balance sheet, according to standard accounting practices. A value is assigned to each individual liability, then a group sub-total is calculated. The grand total of the current liabilities is recorded at the bottom of the sheet.
Balance sheets are one of the most useful forms of accounting documents, and can be used in everything from individual home budgets all the way through to multilevel corporations. Persons who sometimes confused by the process of accounting are usually able to read the balance sheet with no problem. This straightforward approach to financial recording makes it possible for anyone from a teenager who wants to keep up with his or her part time earnings and expenses all the way through to high powered investors to easily understand their current financial state.
Learning to create this type of financial summary is not hard to do. Any basic accounting book will outline the process in just a few steps. There are a number of free balance sheet electronic documents on the Internet that are ready for download. Finally, it is easy to create a balance sheet using the spreadsheet software that is included in the word processing packages that are part of the standard programs on any new computer. Even someone who is intimidated by the process of accounting will find that a balance sheet is easy to maintain, and certainly helps to keep the individual or entity up to speed on the current state of relevant finances.
Primary Activities:
In terms of accounting practices, current liabilities are understood to be any outstanding indebtedness that is anticipated to be paid in full within the current fiscal year. Payments for current liabilities are made from payables accounts, such as the operations account for a business. Understanding what does and does not constitute a current liability makes the process of managing the financial affairs of a company or a household much easier, and is an excellent indicator of the overall financial stability of the organization.
When defining current liabilities, it is important to think in terms of recurring expenses that are generally handled within thirty to ninety days as a matter of normal operations. These examples of current liabilities would include raw materials used in the production process, goods and services that are used in the process of operating the company on a day to day basis, and equipment purchases that will require only a short time to pay in full. Short-term loans that will also be paid off during the current fiscal year may be considered as current liabilities.
Along with items that can be considered current debt, any other items that appear on the balance sheet for the corporation may be considered current liabilities, provided the money owed will be paid off within the year. Because balance sheets normally group short term and long term debt into two different sections, each line item should be evaluated according to the anticipated resolution date and placed on the sheet accordingly.
One exception to the general application of current liabilities has to do with payments that are currently due on long term mortgages, bonds, and business loans. If the payment dates occur in the current fiscal year, it is acceptable to consider the amount of those payments as current liabilities. However, any remaining balance due on those long-term obligations should be recorded elsewhere in the company accounting as long term
Corporation
In a general sense, a corporation is a business entity that is given many of the same legal rights as an actual person. Corporations may be made up of a single person or a group of people, known as sole corporations or aggregate corporations, respectively.
Corporations exist as virtual or fictitious persons, granting a limited protection to the actual people involved in the business of the corporation. This limitation of liability is one of the many advantages to incorporation, and is a major draw for smaller businesses to incorporate; particularly those involved in highly litigated trade
Secondary Activities:
A company is incorporated in a specific nation, often within the bounds of a smaller subset of that nation, such as a state or province. The corporation is then governed by the laws of incorporation in that state.
A corporation may issue stock, either private or public, or may be classified as a non-stock corporation. If stock is issued, the corporation will usually be governed by its shareholders, either directly or indirectly. The most common model is a board of directors which makes all major decisions for the corporation, in theory serving the best interests of the individual shareholders.
In the United States there are three major types of corporations: Close, C, and S.
Close corporations issue stock, but the amount of shareholders is greatly limited, usually to less than thirty. Given the small number of shareholders, normally all are involved in board-level decision making. Transfer and sale of stock is also tightly controlled.
Corporations are the most common type of corporation in the United States. They allow for theoretically unlimited amounts of stock to be issued, and usually have a smaller board of directors which make decisions. C corporations pay taxes both at the corporate level, and at the personal level, as shareholders pay taxes on their dividends.
Corporations are virtually identical to C corporations, save that they have a special tax status with the IRS. Instead of paying taxes at both levels, S corporations are required only to tax their dividends--the corporation itself does not need to pay taxes.
While many people in the United States choose to incorporate in their own state--small businesses especially--some states have corporate charters that are particularly beneficial to certain types of business. Nevada, for example, does not require ownership records that attach names, making it ideal for corporations interested in protecting the private identities of their owners.
A number of books and websites have sprung up in recent years to aid small businesses to incorporate. There are two major benefits for most small businesses. The first is the substantial legal and fiscal protection in the event of litigation or bankruptcy. The second is a potentially uninterrupted, essentially infinite lifespan for the business. This is contrasted with a sole proprietorship, which may experience problems and complications should the owner die, while a corporation allows for the seamless passing on of the business.
Different states have different fees for incorporation, but most are extremely affordable. For anything more complicated than a simple sole proprietorship incorporation, an attorney is a necessity; and even for the most basic corporate structure, legal counsel is recommended.
