Balance sheet and income statement applications in business and personal finance

¶ … Financial Statements

The income statement and the balance sheet are some of the most commonly used financial statements, both at a personal and corporate level. In this text, I concern myself with how I can utilize the balance sheet in my day-to-day life. Further, I look at how a business manager could benefit by having a comprehensive understanding of this crucial financial statement. Lastly, I discuss how I may apply both the income statement and the balance sheet in a future position.

The Balance Sheet and its Application in My Day to Day Life

According to Eisen (2007), a balance sheet is basically a financial statement that charts an entity's financial position at a specific point in time. It is mainly made up of three sections namely the assets section, the liabilities section and lastly the owner's equity section. In my own opinion, the balance sheet could come in handy in terms of application to quite a number of issues in my life. To begin with, it is possible to determine my net worth using a balance sheet. This can be achieved by first coming up with a personal balance sheet with a list of all my liabilities and assets. My net worth in this case is the difference between my total assets and my total liabilities. Knowing my net worth is critical for purposes of determining whether my emergency funds are adequate etc. Secondly, a balance sheet could help me to determine my level of debt. Knowing my debt level is important as I can be able to tell when acquisition of additional debt is inappropriate.

The Income Statement and the Balances Sheet: Future Application

When it comes to the balance sheet, I may use the financial statement in future to chart the sources as well as uses of funds in an organizational setting. This would be critical for the effective management of the organization i.e. As a way of maintaining safe or appropriate liquidity levels. Further, I may in future use the balance sheet to identify those to whom we should advance debt. According to Juan (2007), creditors may be interested in their debtors' ability to pay for the goods and services advanced to them. This is where financial ratios like the current ratio may come in handy.

When it comes to the income statement, I may in future use my understanding of the same to chart my business' operating performance. Here, I would mainly be concerned with tracking both expenses and revenues. Further, my understanding of the income statement could come in handy in future in the determination of income tax liability.

Conclusion

Based on the discussion above, it is clear that the relevance of the two financial statements under consideration cannot be overstated especially when it comes to real life applications in an individual's personal life or even at the corporate setting. With that in mind, an enhanced understanding of these two financial statements is not only important but also beneficial.