Last week, I tried, somewhat successfully, to give you guys the basics on what an income statement is. I really hope that it helped you somehow on your own purposes. This time, we look at the balance sheet, the financial report that shows the amounts of a company's assets, liabilities, and  owner's equity (or stockholders' equity) as of a previous date.

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The balance sheet is prepared in order to report an organization's financial position as of a specified moment. Assets include cash, accounts receivable, inventory, investments, land, buildings, equipment, some intangible assets, and others. Generally assets are reported at their cost or a lower amount due to depreciation, the cost principle, and conservatism. The cost principle also means that some very valuable aspects of the company are not listed as assets. For example, a company's outstanding reputation, its effective management team, and its amazing brand recognition are not reported as assets if they were not acquired in a transaction involving another party or entity.

Liabilities are obligations of a company as of the balance sheet date. These include loans payable, accounts payable, warranty obligations, taxes payable, and more.

The stockholders' equity or owner's equity reports the amount of  the assets that came from the owners and not from its creditors.

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The Balance Sheet has a formula to determine how much equity is in the business Assets – Liabilities = Equity.   This is similar to your personal net worth. You will need to look at your balance sheet no less than annually.

Here is a list of assets, liabilities and equity normally found on a balance sheet.

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List of Assets potentially found on a Balance Sheet:

a.    Current – Assets that can be turned into Cash in the current year
b.    Long Term – Assets that cannot be turned into cash within the year
c.    Fixed – Tangible assets such as equipment, vehicles, furniture etc.

 

List of Liabilities found on a Balance Sheet

a.    Current – Liabilities that will be paid within the current year
b.    Long Term – Liabilities that will not be paid within the current year

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List of Equity found on a Balance Sheet 

a.    Net Income – Income minus Cost of Goods Sold and Expenses
b.    Retained Earnings – Sum of the company’s profits and losses year over year
c.    Share Capital – amounts paid by Shareholder’s to acquire Shares as well as shares bought back by the corporation.

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To help you better understand what balance sheet is, here are some credible resources that you can freely look into. The pictures below will link you to another reliable sources by just clicking them. 

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