What is a Balance Sheet?
Balance sheet is one of the financial statements in a business that show the business’s position in the financial status as of a given date. They consolidate what a company has, owes, and belongs to shareholders, in other words, it is an economic balance sheet.
The balance sheet follows the fundamental accounting equation:
Assets= Liabilities + Equity
This has to always balance which is why it is referred to as the balance sheet.
Terms Used in the Balance Sheet
1. Assets:
Current Assets: Those that are likely to be sold, realized within the shortest time, normally within the financial year ending that the balance sheet was prepared.
Cash: The cash balance of the firm which could either be cash on hand or in the bank.
Petty Cash: A small sum of money that may be used in a short-term widely and regularly – petty cash.
Accounts Receivables: Money that the company is expecting to receive from customers for the goods or services that were sold to them with a promise that they will pay at a later date usually in the future.
Inventory: The inventory of goods for sale which is free from impairment.
Prepaid Expenses: Contractual obligations of paying cash in the present for products or services that are to be received in the future.
Employee Advances: Such sums as have been issued to employees for business-related expenses.
Temporary Investments: Assets that are considered to be realized in the course of the current year or less than one year’s time.
Fixed Assets
These are the assets which shall not likely be sold and converted to cash within the period of one year.
Land: THE AMOUNT PAID FOR THE COMPANY AND THE VALUE OF THE LAND THAT ACCOMPANIES IT.
Buildings: The amount of building owned by the company is an indication of company’s fixed assets.
Furniture and Equipment: The value of carpets and other soft furnishings Office furniture and equipment are the tangible assets of the office and they may include desks, chairs, computers, filing cabinets and telephones.
Computer Equipment: Market value of computers and equipments related to it.
Vehicles: Vehicles and equipment owned by the business; being automobiles.
Less: Accumulated Depreciation: The amount of depreciation that has been charged against the value of fixed assets till the date.
o Other Assets: Those assets which do not come under current or fixed asset can be classify as non –current assets.
Trademarks: The carrying amount of identifiable intangible assets recognized in the balance sheet including trademarks owned by the Company.
Patents: The value of patents recognised by the company.
Security Deposits: Payment given to a landlord, service provider or any other producer of good and service which is hope to be recoverable at a later date.
Other Assets: Self brief: Other non-current assets not included in any of the subcategories listed above.
o Total Assets: It includes current assets, fixed assets, and other assets, which in sum is all that the company possesses.
2. Liabilities:
o Current Liabilities: The accounts that are expected to be paid in the same year of operation as at the date of balance sheet preparation.
Accounts Payable: Cash originating from customers’ sales less the amounts the company owes to suppliers for products or services it has received but not yet paid for.
Business Credit Cards: The amount of money that is due to the business in response to acquisition of business credit cards.
Sales Tax Payable: Amounts included in the tax receivable amount for sales taxes collected by the seller but not remitted to the buyer’s jurisdiction’s taxing authority.
Payroll Liabilities: Salaries that employers have committed to paying their employees but have not made the necessary payment.
Other Liabilities: Any other other short-term financing liabilities, which are not classified under other categories.
Current Portion of Long-Term Debt: The method of determining the part of long-term debt that is payable in the next year based on the company’s accounting records.
Long-Term Liabilities: Financial obligations that are payable in the business’s long-term and which are due for more than one year.
Notes Payable: These are monies which the business entity obtains and, at some time in the future, it shall be required to repay.
Mortgage Payable: Total of the money that has been borrowed specifically for buying property.
Less: Long-Term Debt Current: part of long-term debts that is due for payment in the next year, the liabilities section of the balance sheet.
o Total Liabilities: All the obligations that the company has the current and the long-term liability that adds up to the total amount.
Equity:
o Capital Stock/Partner’s Equity: This is the money that shareholders or partners contribute to the company in order to start the operations.
o Opening Retained Earnings: It is the total outstanding sum of profits that the company has made and did not pay as dividends to investors.
o Dividends Paid/Owner’s Draw: CASH that may be either distributed to shareholders as dividends or that may be withdrawn by the owners of the business.
o Net Income (Loss): The Balance in the company’s accounts after all the revenues earned and the expenditures incurred have been posted.
o Total Equity: It is one of the most important financial ratios signifying the amount of money which is owned by the company adjusted with capital stock, sum of capital and amount of retained earnings minus any kind of dividends and losses.
Total Liabilities & Equity:
The total amount of debits in the balance sheet consisting of total liabilities and total equity. This should match the total assets and make up the balance in the accounting equation.
Summary
The balance sheet can be defined as a statement that presents a snapshot of an organization’s financial health through highlighting the company’s resources or total amount of money it actually owns in a given period in the form of assets, money it owes or is owed in the form of liabilities and the residual money that belongs to the shareholders or owners in the form of shareholders’ equity. Relative to the use of the balance sheet, it is one of the useful tools that investors, creditors, and management in the organization to determine the continuing performance and health of the enterprise.