Balance Sheet, a Point in Time Statement, Research Paper Example

While other financial statements such as cash flow statement and income statement cover a specific period of time, Balance sheet shows the company’s position at a given point in time (QuickMBA). In other words, income statement and cash flow statements start afresh at the beginning of a particular fiscal year but the balance sheet shows the company’s position since it initially started operating.

It makes sense for balance sheet to cover multiple fiscal years because the balance sheet contains long term and short term assets as well as long term and short term liabilities. Assets are things that the company owns and can either be sold or used in operations to produce products and services. In addition, there are intangible assets such as brand names and goodwill that have value and may continue to exist throughout the entire lives of the underlying organizations. Similarly, liabilities are obligations that may have to be paid to creditors over short or long terms (SEC).

One of the arguments that could be made to explain why balance sheet is a point in time may be that balance sheet concerns items that support the existence and the operations of the organization and in addition, many of the items either cover multiple fiscal years or continue to exist throughout the entire life of the organization. While income statement and cash flow are concerned with activities, balance sheet is concerned with the items that support the organization’s infrastructure and allow it to perform the activities mentioned under the income statement and the cash flow statement.

Balance sheet takes birth on the first day of the organization’s operations and continues until the organization cease to exist. This is why it is called a point in time because it shows an organization’s position at any given time since the beginning of its operations and not the beginning of the fiscal year.

References

QuickMBA. (n.d.). The Four Financial Statements. Retrieved September 10, 2012, from http://www.quickmba.com/accounting/fin/statements/

SEC. (n.d.). Beginners’ Guide to Financial Statements. Retrieved September 10, 2012, from http://www.sec.gov/investor/pubs/begfinstmtguide.htm