balance sheet

A statement of a business or institution that lists the assets, debts, and owners' investment as of a specified date.

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

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.

Investopedia Says:
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 (assets) by either borrowing money (liabilities) or getting it from shareholders (shareholders' equity).

The balance sheet is one of the most important pieces of financial information issued by a company. It is a snapshot of what a company owns and owes at that point in time. The income statement, on the other hand, shows how much revenue and profit a company has generated over a certain period. Neither statement is better than the other - rather, the financial statements are built to be used together to present a complete picture of a company's finances.

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Learn about the components of the statement of financial position and how they relate to each other. Reading The Balance Sheet
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Financial report, also called statement of condition or statement of financial position, showing the status of a company's assets, liabilities, and owners' equity on a given date, usually the close of a month. One way of looking at a business enterprise is as a mass of capital (assets) arrayed against the sources of that capital (liabilities and Equity). Assets are equal to liabilities and equity, and the balance sheet is a listing of the items making up the two sides of the equation. Unlike a Profit and Loss Statement which shows the results of operations over a period of time, a balance sheet shows the state of affairs at one point in time. It is a snapshot, not a motion picture, and must be analyzed with reference to comparative prior balance sheets and other operating statements.

A financial statement in table form showing Assets, Liabilities and Equity in which assets equal the sum of liabilities plus equity.
Example: Table 4.

Table 4 Balance Sheet

Assets Liabilities & Equity

Cash $ 10,000 Charge account debts $ 5,000

Cars 50,000 Auto loan balance 20,000

Furniture 50,000 Home mortgage 285,000

House 500,000 Equity 400,000

______

^{Stocks 100,000}

^______

Total assets $710,000 Total liabilities & equity $710,000

A balance sheet is a financial report that provides a summary of a business's position at a given point in time, including its assets (economic resources), its liabilities (financial debts or obligations), and its total or net worth. "A balance sheet does not aim to depict ongoing company activities," wrote Joseph Peter Simini in Balance Sheet Basics for Nonfinancial Managers. "It is not a movie but a freeze-frame. Its purpose is to depict the dollar value of various components of a business at a moment in time." Balance sheets are also sometimes referred to as statements of financial position or statements of financial condition.

Balance sheets are typically presented in two different forms. In the report form, asset accounts are listed first, with the liability and owners' equity accounts listed in sequential order directly below the assets. In the account form, the balance sheet is organized in a horizontal manner, with the asset accounts listed on the left side and the liabilities and owners' equity accounts listed on the right side. The term "balance sheet" originates from this latter form, for when the left and right sides have been completed, they should have equal dollar amounts—in other words, they must balance.

Contents of the Balance Sheet

Most of the contents of a business's balance sheet are classified under one of three categories: assets, liabilities, and owner equity. Some balance sheets, though, also include a "notes" section wherein relevant information that does not fit under any of the above accounting categories is included. Information that might be included in the notes section would include mentions of pending lawsuits that might impact future liabilities or changes in the business's accounting practices.

ASSETS. Assets are items owned by the business, whether fully paid for or not. These items can range from cash—the most liquid of all assets—to inventories, equipment, patents, and deposits held by other businesses. Assets are further categorized into the following classifications: current assets, fixed assets, and miscellaneous or other assets. As David H. Bangs Jr. related in Finance: Mastering Your Small Business, "the list of assets starts with cash and ends with the least liquid fixed assets, those that are the hardest to turn into cash. For instance, if you have an item labeled 'good will' on your balance sheet, you'll have to sell the business itself to turn that particular asset into cash."

Current assets include cash, government securities, marketable securities, notes receivable, accounts receivable, inventories, prepaid expenses, and any other item that could be converted to cash in the normal course of business within one year. Fixed assets, meanwhile, include real estate, physical plant, leasehold improvements, equipment (from office equipment to heavy operating machinery), vehicles, fixtures, and other assets that can reasonably be assumed to have a life expectancy of several years. It is recognized, however, that most fixed assets—although not land—will lose value over time. This is known as depreciation. When determining a company's fixed assets, then, a business owner needs to make certain that depreciation is figured into the final value of his or her fixed assets. The net fixed asset value of a company's holdings is calculated as the net of cost minus accumulated depreciation. Finally, businesses often have assets that are less tangible than securities, inventory, or high-speed printers. These are classified as "other assets" and include such intangible assets as patents, trademarks, and copyrights, notes receivable from officers or employees, and contracts that call for them to serve as exclusive providers of goods or services to a client. Writing in Finance for Non-Financial Managers and Small Business Owners, Lawrence W. Tuller defined intangible assets as "any expenditure that adds value to the company but cannot be touched or held."

LIABILITIES. Liabilities, on the other hand, are the business's obligations to other entities as a result of past transactions or events. These entities range from employees (who have provided work in exchange for salary) to investors (who have provided loans in exchange for the value of that loan plus interest) to other companies (who have supplied goods or services in exchange for agreed-upon compensation). Liabilities are typically divided into two categories: short-term or current liabilities and long-term liabilities.

Liabilities that qualify for inclusion under the short-term or current designation include all those that are due and payable within one year. These include obligations in the areas of accounts payable, taxes payable, notes payable, accrued expenses (such as wages, salaries, withholding taxes, and FICA taxes) and other expenses that are supposed to be paid off over the next year. Such obligations include the portion of long-term debt that is scheduled to be paid off during the course of the coming year. Long-term liabilities are those debts to lenders, mortgage holders, and other creditors that will take more than one year to pay off.

OWNERS' EQUITY. Once a business has determined its assets and liabilities, it can then determine owners' equity, the book value of the business's assets once all liabilities have been deducted. Owners' equity, which is also sometimes called stockholders' equity, is in essence the net worth of the company.

Balance Sheets and Small Businesses

A comprehensive, accurate balance sheet can be a valuable tool for the small business owner or entrepreneur seeking to gain a full understanding of his or her operation. Studying current assets and current liabilities, for instance, can reveal significant information about a company's short-term strength. "If current liabilities exceed current assets, the business may have difficulty meeting its payment obligations within the year," wrote Simini. "In fact, some experts feel that in a well-run company current assets should be approximately double current liabilities." Indeed, balance sheets—if produced on a monthly or quarterly basis and compared with earlier statements—can provide entrepreneurs and small business owners with valuable information on operating trends and areas of developing strength or weakness. "By analyzing a succession of balance sheets and income statements, managers and owners can spot both problems and opportunities," noted Simini. "Could the company make more profitable use of its assets? Does inventory turnover indicate the most efficient possible use of inventory in sales? How does the company's administrative expense compare to that of its competition? For the experienced and well-informed reader, then, the balance sheet can be an immensely useful aid in an analysis of the company's overall financial picture."

Given the balance sheet's value in providing an overview of a company's financial standing at a given point in time, it is understandably one of the primary financial documents demanded by prospective lenders, investors, and business clients. Small business owners, then, need to recognize that the investment of time necessary in compiling balance sheets (which is minimal in most instances because of the proliferation of business software available on the market) is decidedly worthwhile.

Further Reading:

Atrill, Peter. Accounting and Finance for Nonspecialists. Prentice Hall, 1997.

Bangs, David H., Jr., with Robert Gruber. Finance: Mastering Your Small Business. Upstart, 1996.

Simini, Joseph Peter. Balance Sheet Basics for Nonfinancial Managers. Wiley, 1990.

See also: Annual Report

A condensed statement showing the nature and amount of a company’s assets, liabilities, and capital on a given date. In dollar amounts the balance sheet shows the assets the company owns, the money it owes, and the ownership interest in the company of its stockholders.

For more information on balance sheet, visit Britannica.com.

A comprehensive financial statement that is a summarized assessment of a company's accounts specifying its assets and liabilities. A report, usually prepared by independent auditors or accountants, which includes a full and complete statement of all receipts and disbursements of a particular business. A review that shows a general balance or summation of all accounts without showing the particular items that make up the several accounts.

An orderly account of the assets of a company or individual and of the financial claims on those assets by others.

Accountancy
Key concepts
Accountant Bookkeeping Trial balance General ledger Debits and credits Cost of goods sold Double-entry system Standard practices Cash and accrual basis GAAP / IFRS
Financial statements
Balance sheet Income statement Cash flow statement Equity Retained earnings
Auditing
Financial audit GAAS Internal audit Sarbanes-Oxley Act Big Four auditors
Fields of accounting
Cost • Financial • Forensic Fund • Management • Tax
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Annual balance sheet written in cuniform script. Sumeria, clay, ca. 2040 BCE. Department of Oriental Antiquities, Louvre.

In financial accounting, a balance sheet or statement of financial position is a summary of a person's or organization's balances. 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.^[1] Of the four basic financial statements, the balance sheet is the only statement which applies to a single point in time.

A company balance sheet has three parts: assets, liabilities and ownership equity. The main categories of assets are usually listed first, and typically in order of liquidity.^[2] 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.^[3]

Another way to look at the same equation is that 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 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."

Records of the values of each account or line in the balance sheet are usually maintained using a system of accounting known as the double-entry bookkeeping system.

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 can not, 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.

Contents 1 Types 1.1 Personal balance sheet 1.2 US small business balance sheet 2 Public Business Entities balance sheet structure 2.1 Assets 2.2 Liabilities 2.3 Equity 3 Sample balance sheet structure 4 See also 5 References

Types

A balance sheet summarizes an organization or individual's assets, equity and liabilities at a specific point in time. Individuals and small businesses tend to have simple balance sheets.^{[4][dead link]} Larger businesses tend to have more complex balance sheets, and these are presented in the organization's annual report.^[5] Large businesses also may prepare balance sheets for segments of their businesses.^[6] A balance sheet is often presented alongside one for a different point in time (typically the previous year) for comparison.^{[7][8][dead link]}

Personal balance sheet

A personal balance sheet lists current assets such as cash in checking accounts and savings accounts, long-term assets such as common stock and real estate, current liabilities such as loan debt and mortgage debt due, or overdue, long-term liabilities such as mortgage and other loan debt. Securities and real estate values are listed at market value rather than at historical cost or cost basis. Personal net worth is the difference between an individual's total assets and total liabilities.^{[9][dead link]}

US small business balance sheet

Sample Small Business Balance Sheet^[10]

Assets		Liabilities and Owners' Equity
Cash	$6,600	Liabilities
Accounts Receivable	$6,200	Notes Payable	$30,000
		Accounts Payable
		Total liabilities		$30,000
Tools and equipment	$25,000	Owners' equity
		Capital Stock	$7,000
		Retained Earnings	$800
		Total owners' equity		$7,800
Total	$37,800	Total		$37,800

A small business balance sheet lists current assets such as cash, accounts receivable, and inventory, fixed assets such as land, buildings, and equipment, intangible assets such as patents, and liabilities such as accounts payable, accrued expenses, and long-term debt. Contingent liabilities such as warranties are noted in the footnotes to the balance sheet. The small business's equity is the difference between total assets and total liabilities.^[11]

Public Business Entities balance sheet structure

Guidelines for balance sheets of public business entities are given by the International Accounting Standards Committee and numerous country-specific organizations.

Balance sheet account names and usage depend on the organization's country and the type of organization. Government organizations do not generally follow standards established for individuals or businesses.^{[12][dead link][13][14][dead link][15][16]}

If applicable to the business, summary values for the following items should be included on the balance sheet:^[17]

Assets

Current assets

1. Cash and cash equivalents
2. Inventories
3. Accounts receivable
4. Prepaid expenses for future services that will be used within a year

Fixed assets

1. Property, plant and equipment
2. Investment property, such as real estate held for investment purposes
3. Intangible assets
4. Financial assets (excluding investments accounted for using the equity method, accounts receivables, and cash and cash equivalents)
5. Investments accounted for using the equity method
6. Biological assets, which are living plants or animals. Bearer biological assets are plants or animals which bear agricultural produce for harvest, such as apple trees grown to produce apples and sheep raised to produce wool.^[18]

Liabilities

1. Accounts payable
2. Provisions for warranties or court decisions
3. Financial liabilities (excluding provisions and accounts payable), such as promissory notes and corporate bonds
4. Liabilities and assets for current tax
5. Deferred tax liabilities and deferred tax assets
6. Minority interest in equity
7. Issued capital and reserves attributable to equity holders of the Parent company
8. Unearned revenue for services paid for by customers but not yet provided

Equity

The net assets shown by the balance sheet equals the third part of the balance sheet, which is known as the shareholders' equity. Formally, shareholders' equity is part of the company's liabilities: they are funds "owing" to shareholders (after payment of all other liabilities); usually, however, "liabilities" is used in the more restrictive sense of liabilities excluding shareholders' equity. The balance of assets and liabilities (including shareholders' equity) is not a coincidence. Records of the values of each account in the balance sheet are maintained using a system of accounting known as double-entry bookkeeping. In this sense, shareholders' equity by construction must equal assets minus liabilities, and are a residual.

1. Numbers of shares authorized, issued and fully paid, and issued but not fully paid
2. Par value of shares
3. Reconciliation of shares outstanding at the beginning and the end of the period
4. Description of rights, preferences, and restrictions of shares
5. Treasury shares, including shares held by subsidiaries and associates
6. Shares reserved for issuance under options and contracts
7. A description of the nature and purpose of each reserve within owners' equity

Sample balance sheet structure

The following balance sheet structure is just an example. It does not show all possible kinds of assets, equity and liabilities, but it shows the most usual ones. Because it shows goodwill, it could be a consolidated balance sheet. Monetary values are not shown, summary (total) rows are missing as well.

Balance Sheet of XYZ, Ltd. as of 31 December 2006

ASSETS

Current Assets
Cash and cash equivalents
Accounts receivable (debtors)
Inventories
Prepaid Expenses
Investments held for trading
Other current assets

Fixed Assets (Non-Current Assets)
Property, plant and equipment 
Less : Accumulated Depreciation
Goodwill 
Other intangible fixed assets
Investments in associates
Deferred tax assets

LIABILITIES and EQUITY

 Creditors: amounts falling due within one year (Current Liabilities)
Accounts payable
Current income tax liabilities
Current portion of bank loans payable
Short-term provisions
Other current liabilities

Creditors: amounts falling due after more than one year (Long-Term Liabilities)
Bank loans
Issued debt securities
Deferred tax liability
Provisions
  Minority interest


Equity
Share capital
Capital reserves
Revaluation reserve
Translation reserve
Retained earnings

See also

• Reformatted balance sheet
• Off-balance-sheet
• National accounts
• Minority interest
• Income statement
• Model Audit

References

This article needs additional citations for verification. Please help improve this article by adding reliable references. Unsourced material may be challenged and removed. (June 2007)

1. ^ Williams, Jan R.; Susan F. Haka, Mark S. Bettner, Joseph V. Carcello (2008). Financial & Managerial Accounting. McGraw-Hill Irwin. pp. 40. ISBN 9780072996500. 
2. ^ Daniels, Mortimer (1980). Corporation Financial Statements. New York: New York : Arno Press. p. 13-14. ISBN 0405135149. 
3. ^ Williams, p.50
4. ^ US Small Business Administration sample spreadsheet for a small business
5. ^ Microsoft Corporation balance sheet, June 30, 2004
6. ^ International Business Machines "Global Financing" balance sheet comparing 2003 to 2004
7. ^ Balance sheet comparing two year-end balance sheets
8. ^ Balance sheet comparing monthly balances
9. ^ Personal balance sheet structure
10. ^ Williams, p. 50.
11. ^ Small Business Administration
12. ^ University of Calgary (Canada) Financial Services balance sheet accounts
13. ^ University of Victoria (Canada) balance sheet accounts
14. ^ University of Minnesota (USA) balance sheet accounts
15. ^ State of Alabama (USA) balance sheet accounts
16. ^ New York State (USA) public utilities balance sheet accounts
17. ^ "Presentation of Financial Statements" International Accounting Standards Board. Accessed 24 June 2007.
18. ^ Epstein, Barry J.; Eva K. Jermakowicz (2007). Interpretation and Application of International Financial Reporting Standards. John Wiley & Sons. pp. 931.. ISBN 9780471798231. 

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