Balance sheet

Balance Sheet

In financial accounting, a balance sheet or statement of financial position is a summary of the financial balances of a sole proprietorship, a business partnership, a corporation or other business organization, such as an LLC or an LLP. Assets, liabilities and ownership equity are listed as of a specific date, such as the end of its financial year. A balance sheet is often described as a snapshot of a company's financial condition. Of the three basic financial statements, the balance sheet is the only statement which applies to a single point in time of a business calendar year.

A standard company balance sheet has three part, assets, liabilities and ownership equity. The main categories of assets are usually listed first and typically in order of liquidity. Assets are followed by the liabilities. The difference between the assets and the liabilities is known as equity or the net assets or the net worth or capital of the company and according to the accounting equation, net worth must equal assets minus liabilities.

Another way to look at the balance sheet equation is that total assets equals liabilities plus owner's equity. Looking at the equation in this way shows how assets were financed, either by borrowing money liability or by using the owner's money owner's or shareholders' equity.

Balance sheets are usually presented with assets in one section and liabilities and net worth in the other section with the two sections balancing.

A business operating entirely in cash can measure its profits by withdrawing the entire bank balance at the end of the period, plus any cash in hand. However, many businesses are not paid immediately, they build up inventories of goods and they acquire buildings and equipment. In other words, businesses have assets and so they cannot, even if they want to, immediately turn these into cash at the end of each period. Often, these businesses owe money to suppliers and to tax authorities, and the proprietors do not withdraw all their original capital and profits at the end of each period. In other words businesses also have liabilities.

Definition of  Balance Sheet

A financial statement that summarizes a company's assets, liabilities and shareholders' equity at a specific point in time. These three balance sheet segments give investors an idea as to what the company owns and owes, as well as the amount invested by the shareholders.

                  The balance sheet must follow the following formula:

                   Assets = Liabilities + Shareholders' Equity

 

Explains Balance Sheet

It's called a balance sheet because the two sides balance out. This makes sense: a company has to pay for all the things it has an asset by either borrowing money liabilities or getting it from shareholders equity.

           Each of the three segments of the balance sheet will have many accounts within it that document the value of each. Accounts such as cash, inventory and property are on the asset side of the balance sheet, while on the liability side there are accounts such as accounts payable or long-term debt. The exact accounts on a balance sheet will differ by company and by industry, as there is no one set template that accurately accommodates for the differences between different types of businesses.

         If you want more on the Balance Sheet, check out -- Reading the Balance Sheet and How To Evaluate A Company's Balance Sheet.

What is Balance Sheet:

The balance sheet is an accounting statement that summarizes the various assets, liabilities and equities held by a company on a specific date.  The equities are usually considered as part of the liabilities.  The balance sheet is always drawn up at the close of business day, but is most relevant on the last day of the company's accounting period the balance sheet date.  

           Balance sheet is an important document not only for bank managers who sanction loan but is equally important to others who give credits and invest in equity etc. All creditors and investors all need to familiarize themselves with the assets, liabilities, and equity of a company. The balance sheet is the best place to find all information at one place. The reason as to why balance sheet is so called is that it is statement where 

Assets = Liabilities + Equity

Liabilities:- 1. Share Capital 2. Reserve and Surplus 3. Secured Loans 4. Unsecured Loans 5. Current Liabilities and Provisions

Assets :- 1. Fixed Assets 2. Investments 3. Current Assets, Loans of Advances 4. Miscellaneous Expenses 5. Profit and Loss Account

A balance sheet, also known as a "statement of financial position", reveals a company's assets, liabilities and owners' equity (net worth). The balance sheet, together with the income statement and cash flow statement, make up the cornerstone of any company's financial statements.

If you are a shareholder of a company, it is important that you understand how the balance sheet is structured, how to analyses it and how to read it. 

The balance sheet works

The balance sheet is divided into two parts that, based on the following equation, must equal (or balance out) each other. The main formula behind balance sheets is:

assets = liabilities + shareholders' equity

This means that assets, or the means used to operate the company, are balanced by a company's financial obligations along with the equity investment brought into the company and its retained earnings.

Assets are what a company uses to operate its business, while its liabilities and equity are two sources that support these assets. Owners' equity, referred to as shareholders' equity in a publicly traded company, is the amount of money initially invested into the company plus any retained earnings, and it represents a source of funding for the business.

It is important to note, that a balance sheet is a snapshot of the company's financial position at a single point in time.