Review of Financial Statements Paper Essay Example | Topics and Well Written Essays - 500 words

Review of Financial Statements Paper - Essay Example Under both systems financial statements of both entities play an important role. Balance Sheet is a statement of affairs of the company on a particular date that provides in details the sources of funds for the company and how those sources have applied for by the company. This in fact is an overall financial summary of the company as on a date. The depiction of sources of funds provides an idea as to how the company has mobilized funds in order to meet its objectives. Basically, funds can be organized through two sources, namely investments by the company’s shareholders and/ or through borrowings by the company. Investments by shareholders is the capital of the owners invested into the company, and held by the shareholders in the shape of shares of a specific value into the total capital of the company, which may be equity or preferential. The distinction of equity and preferential capital has to do with allotment of certain priority rights relating to payment of dividend and repayment of capital invested into such shares at the time of liquidation of the company. Further, a balance sheet describes borrowings as secured and unsecured. Repayment of secured borrowings is insured on the security of certain specific assets; whereas unsecured borrowings’ rights of repayment emerge only after the satisfaction of se cured loans, and out of left over assets of the company. Balance sheet further describes how funds of the companies have been applied on a particular date on different assets and miscellaneous expenditures that include expenditures deferred over a period of some fiscal periods. Assets may be fixed or current. Fixed assets are expenditures made by the company that provide benefits to the company over useful life of the assets. That is why only a portion of fixed assets expenditure, called depreciation, is