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Difference between balance sheet and cash flow statement

enero 6, 2020

The balance sheet a statement showing the company's financial position on a specific date, listing the assets, liabilities and capital. used to indicate the ownership and ownership of the company at a given time. It plays a vital role in indicating the entity's financial health, to help users of the declaration make rational decisions. Not exactly the same as a consolidated balance sheet.

The consolidated balance sheet it is drawn up when the data relating to the ownership and availability of the holding and subsidiary are listed in a combined form. In this article extract, you will find all the important differences between the balance sheet and the consolidated balance sheet.

Comparative chart

Basis for comparison Consolidated financial statements
SenseStatement showing a company's financial health.A statement showing the financial conditions of the parent company and its subsidiaries in a combined way.
In particular, it mentions the assets and liabilities belonging to which companysNo
PreparationSimple enoughA little bit difficult
Prepared byEach entityOnly those companies that have branches.

Definition of the balance sheet

A balance sheet summarizes the company's financial position at any given time. an important part of the cash flow statement together with the income statement and the cash flow statement. The balance sheet reflects how the entity's funds are used efficiently to obtain the maximum benefit.

In short, a snapshot of the entity's financial status that determines the assets owned, the liabilities owed and the owner's capital. Look at this balance equation:

The balance sheet used as a tool to analyze and evaluate the liquidity and solvency of the problem. In addition, it is also used as a parameter to compare the company's past and present performance together with the forecast of its future possibilities.

In general, the financial statements drawn up on a specific date which is usually the end of the accounting period, i.e. March 31. However, the company can also prepare it – quarterly or half-yearly.

Definition of the consolidated balance sheet

When the assets, equity investments and liabilities of a holding company and its subsidiaries are grouped in a single document, the document known as the consolidated balance sheet. To put it simply, a consolidation of the balance sheet of the parent company with its branches.

The consolidated balance sheet prepared as a typical financial statement, i.e. based on plan VI of the Companies Act of 1956, but no distinction is made as to which asset or liability belongs to a particular company.

a compact and faithful picture of the financial position of the whole group. prepared on a specific date, which is usually the end of the financial year. The balance sheet equation will be the same as above (in the normal balance).

Now, what are you wondering, what is the holding company and the subsidiary? A company that holds more than 51% of the total share capital or controls the composition of its board of directors (BOD), i.e. has the right to appoint or remove directors from any other company known as the holding company. The company whose share capital in excess of 51% held by another company or whose composition of BOD controlled by any other company known as a subsidiary.

For example A Limited owns 53% of shares in B Limited. In this situation, A Limited is a holding company, while B Limited is a subsidiary.

Main differences between balance sheet and consolidated balance sheet

  1. A balance sheet is a statement of the financial position of a single company, while the consolidated balance sheet a statement of the financial position of the more than one company of the same group considered as a whole.
  2. A stand alone balance sheet explicitly mentions the entity's assets and liabilities, while the consolidated balance sheet does not separately specify which assets belong to which company.
  3. Preparing the balance sheet comparatively simpler than preparing the consolidated balance sheet.
  4. The balance sheet can be prepared by each company, be it an individual company or a company, while the consolidated balance sheet can be prepared only by the company that has branches.

Conclusion

The preparation of the mandatory balance sheet for each organization as an important part of the financial statement. a brief summary of the company's performance, profitability, liquidity and solvency. at the discretion of the company, use an independent balance sheet or a consolidated balance sheet.

Both are important in their place, as if you want to know the overall performance of the whole group, therefore you need to prefer the consolidated balance sheet. Conversely, if you want to know the individual performance of each company, you need to have an independent balance sheet.

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