The total of the two sides of balance sheet must equal.
Benefits of Balance Sheet
The benefits associated with the balance sheet are as follows:.
• Through balance shareholders can judge that how their capital is being used by the management. In what type of assets their funds are invested to maximize the return. Shareholders through balance sheet review the financial position of the company and can decide to for further investments or divestments.
• Lenders and creditors can judge the liquidity position of the company and make decisions regarding extension of credits and debts.
• Management can decisively evaluate the financial position and take remedial measures if required. Balance sheet helps management in determining the future financial needs.
• Employees can compare the remunerations with financial position and are in a better position to bargain with management for enhancement in remunerations.
Limitations of Balance Sheet
Balance sheet may not depict actual financial strength or weakness of a company because the figures related to the fixed assets are reported in the balance sheet at historical costs. The real value of those assets may be more or less according to their current conditions. Moreover, there may be some liabilities created through off-balance sheet financing such as operating leases etc.
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