Question

The balance sheet consists of elements that represent incomplete accounting cycles. As a result, the cumulative balances will carry over into the next accounting period. Discuss how the balance sheet can be used to project the cash-generating ability of an entity.

Answer 1

Balance sheet of any company do contains such items/elements which represent incomplete accounting cycles.
These are the accounts receivable, stock (working in progress, finished goods), accrued incomes etc.
These elements are the cash generating item and have a future value and also considered to be a part of the balance sheet.

So, now the question arises how the balance sheet can be used to project the cash generating ability of an entity.

This can be done by considering the elements in a balance sheet which have a near future value i.e considering such elements which are convertible to cash in future in short term.

Example :- considering account receivables stock in a balance sheet can be used to project the cash generating ability of an entity.