e impression of it having a "sound asset base".In one word, what seems good and right to me, may not be enough for you. Still, there are many users to which the balance sheet does not seem confused and is necessary, although they have conflicting needs:IRS and other government and state institutions. It is probably fair to say that income statements are constructed with the IRS in mind more than any other user. After all, it is the bottom line of the statements that determines what taxes will be due. Lenders are more interested in balance sheets, although the income statement is not taken lightly. The first question a lender must ask is "What if this loan is not repaid?" The lender will want something to sell to get paid back. A company's balance sheet tells the lender what there is to sell. So a lender wants a balance sheet that indicates what the company owes (its liabilities) and what it owns (its assets). Assets include such obvious things as property and cash, but also accounts receivables (what the company is owed) and prepaid expenses (like advances on rent). Things the company owes ("accounts payable") include debt and bills yet to be paid, as well as what stockholders put into the business ("stockholder equity") and retained earnings (profit not paid out to stockholders in the form of dividends or other payments). Lenders also want to look at the income statement, but they may be more interested in a cash statement. The IRS wants to know how much profit you make, but wants profits to be adjusted to account for depreciation (wear and tear) on assets the company owns. The lender finds that interesting, but the lender will not be comforted by the fact that the $1 million you spend on a new building will be depreciated over 10 years when the loan is for three. Finally, of course, shareholders want to look at income statements and balance sheets. They give snapshots of the current health of the business. They may be less interested ...
