1. Describe the purpose a Balance Sheet
A balance sheet can be described a financial statement that seeks to show the financial position of an organization. It shows the assets, liabilities and the equities of an organization at any given time. The assets of an organization can be described as the resources owned and/or controlled by the organization arising from past transaction and for which the organization can expect future benefits. The liabilities of an organization can be described as the obligations arising from past transaction that the company is expected to forgo future economic benefits to satisfy. Equities of an organization refer to the owners’ contribution to the organization. Equities are composed of owner’s contribution if form of stock contribution and retained earnings (Brigham, 2014). 2. Explain what is meant by a liquidity ratio.
Liquidity ratio can be described a ratio that seeks to determine the ability of an organization to repay meet its short –term obligations when they fall due. It shows the ability of a company to turn its current assets into cash to repay of the short –term debts and thus compares the current assets against current liabilities. Current assets refers to the assets that can be converted into cash or cash equivalent within a period of twelve months and include cash, accounts receivable and inventory, while current liabilities are obligations that fall due within one year such as accounts payable and notes payable . Various forms of liquidity ratios exist such as current ratio, cash ratio, acid test ratio and working capital (Brigham, 2014). 3. Explanation of the term amortization.
Amortization can be described as the allocation of the cost of an intangible asset over the economic life of the asset, where an intangible asset is referred to as an identifiable non- monetary asset without physical substance. Examples