Balance Sheet
A balance sheet is a financial statement that provides a snapshot of a company's financial position at a specific point in time. It presents the company's assets, liabilities, and shareholders' equity, showing the balance between what the company owns and what it owes. This information is crucial for assessing the company's solvency and financial health.
8 Key excerpts on "Balance Sheet"
- Thomas Herold(Author)
- 2020(Publication Date)
- THOMAS HEROLD(Publisher)
...What is a Balance Sheet? Balance Sheet refers to a corporate financial statement. The purpose of it is to thoroughly summarize the liabilities, assets, and shareholders ’ equity in the firm at a fixed moment in time. The statement provides a revealing glimpse into the things the corporation owns and the money it owes, along with the total amount which shareholders have invested in the going concern. Where these financial statements are concerned, the formula for assets is liabilities plus shareholders’ equity. Balance Sheets ultimately derive their names from the equation which pits the assets on one side while the shareholders’ equity and liabilities remain on the opposite site. They have to balance out, which provides the concept behind the name. It makes perfect sense that corporations have only two choices when paying for their assets. They might either borrow the money through assuming liabilities or obtain it off of investors, which happens when they issue shareholder equity. Consider an example to better understand what is involved with this concept. If a corporation obtains a $40,000 bank loan to be repaid in five years, then its assets (cash account section) will rise by the $40,000. At the same time, the total liabilities (long term debt section) will also rise by the $40,000 amount. This restores balance to the equation. Should the firm then receive $80,000 from investors, the assets will also increase by that same amount. On the other side of the equation, the shareholder equity rises by the same $80,000. When the company earns revenues which are greater than the liabilities, these go into the so called shareholder equity account. It is that category that stands for all net assets the owners of the corporation hold...
eBook - ePub- Thomas R. Robinson(Author)
- 2020(Publication Date)
- Wiley(Publisher)
...Summary The Balance Sheet (also referred to as the statement of financial position) discloses what an entity owns (assets) and what it owes (liabilities) at a specific point in time. Equity is the owners’ residual interest in the assets of a company, net of its liabilities. The amount of equity is increased by income earned during the year, or by the issuance of new equity. The amount of equity is decreased by losses, by dividend payments, or by share repurchases. An understanding of the Balance Sheet enables an analyst to evaluate the liquidity, solvency, and overall financial position of a company. The Balance Sheet distinguishes between current and non-current assets, and between current and non-current liabilities unless a presentation based on liquidity provides more relevant and reliable information. The concept of liquidity relates to a company’s ability to pay for its near-term operating needs. With respect to a company overall, liquidity refers to the availability of cash to pay those near-term needs. With respect to a particular asset or liability, liquidity refers to its “nearness to cash.” Some assets and liabilities are measured on the basis of fair value, and some are measured at historical cost. Notes to financial statements provide information that is helpful in assessing the comparability of measurement bases across companies. Assets expected to be liquidated or used up within one year or one operating cycle of the business, whichever is greater, are classified as current assets. Assets not expected to be liquidated or used up within one year or one operating cycle of the business, whichever is greater, are classified as non-current assets. Liabilities expected to be settled or paid within one year or one operating cycle of the business, whichever is greater, are classified as current liabilities...
- Michael Chibili(Author)
- 2019(Publication Date)
- Routledge(Publisher)
...2 The Balance Sheet 2.1 The components of a Balance Sheet 2.2 Formats of Balance Sheets 2.3 Establishing simple Balance Sheets 2.4 The Statement of Retained Earnings The Balance Sheet also at times called the statement of financial position is a list of all the assets owned by an organization, the debts owed by the organization and also the sum of all the investments brought into the organization by its owners. Despite the fact that the Balance Sheet is a result of the organization’s activities over time, it however is a representation of the worth and obligations of the organization at a very specific date. It is one of the most prominent financial statements of any organization. Section 2.1 introduces the various parts of the Balance Sheet. In Section 2.2 various formats used in establishing Balance Sheets will be discussed while Section 2.3 will illustrate the establishment of a simple Balance Sheet. 2.1 The components of a Balance Sheet The Balance Sheet shows the balance between the assets of an organization with its liabilities and owners’ equity. This balance is symbolized in the fundamental accounting equation as follows: Assets = liabilities + owner s ’ equity For this fundamental equation to be respected at all times, an increase in an asset must be accompanied by a corresponding decrease in another asset or an increase in either a liability or owners’ equity. The Balance Sheet is the only one of the five major accounting statements that is established at a given point in time and that shows a balance between its two parts. The major sections of the Balance Sheet are as defined in the fundamental accounting equation and they define the structure of the subsections as follows: 2.1.1 Assets 2.1.2 Liabilities 2.1.3 Owners’ equity 2.1.1 Assets An asset is everything of value that is owned by a person or a company. In a Balance Sheet, all things owned are recorded in their monetary values...
- Roger Hussey, Audra Ong(Authors)
- 2019(Publication Date)
- Business Expert Press(Publisher)
...CHAPTER 4 The Statements of Financial Position (Balance Sheet) and Changes in Equity About This Chapter All companies, whether manufacturing goods, retailing, or providing services, incur costs. In the previous chapter we considered the treatment of costs on the profit or loss account and consolidated financial statements. Any charge to the profit or loss account will reduce the amount of profit for that financial period. In this chapter, we consider two other financial statements that companies must produce. First we consider the statement that reveals whether a company is financially sound. To answer that question, we need to refer to the Balance Sheet, named in the standard as the statement of financial position. The second statement we examine is the statement of changes in equity. The shareholders are the owners of a company. They hold the equity and need to be informed of changes from one year to the next. The Balance Sheet will always balance. By this we mean that the value given to all the assets will equal the amount that the company has borrowed plus the investments made by the shareholders. In the first section of this chapter, we explain the concept underpinning the Balance Sheet as demonstrated by the accounting equation. We explain the standards that apply to the assets of a company. These assets are both tangible, such as buildings, and intangible, such as brand names and other rights. These assets are known as noncurrent assets, although terms such as long-lived, capital, and fixed assets appear in the literature and have the same meaning. The Balance Sheet also includes current assets, such as inventory and current liabilities, for example any money it owes to its suppliers. These are usually of relatively small value, and there are no specific standards that address them, apart from IAS 2 Inventory...
eBook - ePubThe Five Rules for Successful Stock Investing
Morningstar's Guide to Building Wealth and Winning in the Market
- Pat Dorsey(Author)
- 2011(Publication Date)
- Wiley(Publisher)
...Either the company’s business model is too confusing or you need to do more digging before committing any of your money. Investor’s Checklist: Financial Statements Explained • The Balance Sheet tells you how much a company owns, how much it owes, and the difference between the two, which represents the value of the money that shareholders have invested in the firm. Shareholders’ equity in a firm is the value of the firm’s assets minus its liabilities. • Because the Balance Sheet must balance at all times, any change in assets or liabilities will cause a corresponding change in equity. If a firm generates huge profits that drive an increase in assets, equity will also increase. • Keep an eye on the trend in accounts receivable compared with sales. If the firm is booking a large amount of revenue that hasn’t yet been paid for, this can be a sign of trouble. • When you’re evaluating a company’s liabilities, remember that debt is a fixed cost. A big chunk of long-term debt can be risky for a company because the interest has to be paid no matter how business is doing. • Be wary of companies that report “nonrecurring” charges, particularly if they make a habit of it. All kinds of expenses can be buried in “one-time” charges. • The statement of cash flows is the true touchstone for corporate value creation because it shows how much cash a company is generating from year to year—and cash is what counts. Look at the cash flow statement first. • When you’re analyzing a company, make sure you can understand how a dollar flows through the business. If you can’t do this, you probably don’t understand the company well enough to buy the stock....
eBook - ePub- Vibrant Publishers(Author)
- 2019(Publication Date)
- Vibrant Publishers(Publisher)
...The Balance Sheet The Balance Sheet contains the company’s Assets, Liabilities and Stockholders’ Equity. The assets and liabilities are further broken up into short-term (called current) and long-term assets and liabilities. There can be several items under each of these depending upon the company’s line of business. Diagram on the following page shows the most common ones. Current Assets These are the assets that the company intends to use within one year. Below is a description of the various current assets. Cash Cash refers to the cash-in-hand or in the company’s bank accounts. Companies carry cash to take care of daily operational expenses and also to mitigate risk of low sales, slowdown or recession. Accounts Receivable When the company sells products and services to its customers, it may do so without collecting money immediately. The credit period could range from a few days to several months. The amount it expects to receive (within a year) out of the credit extended is shown as a current asset. Inventory Companies maintain an inventory of materials, inventory of in-process items (which are still being manufactured) and an inventory of finished goods until they are sold. The value of these inventories is shown as a current asset at cost price (and not at the selling price) as per accounting guidelines discussed earlier under Historical Costs Convention. Prepaid Expenses Most companies pay several expenses in advance for the entire year or at least for a few months. Most common examples are rent and insurance premiums. Since these are prepaid, they appear as an asset in the Balance Sheet until the year completes, when they get expensed. Investment Securities Companies often park excess cash into short-term investment securities to get higher returns...
eBook - ePub- David Horner(Author)
- 2020(Publication Date)
- Kogan Page(Publisher)
...The items remaining on the trial balance would then be used to produce the Balance Sheet. The thinking behind this is that the profit figure will need to be calculated first. Without the profit figure for the most recent period, the Balance Sheet would not balance. However, more recently there has been a reversal of this thinking. Limited companies following international accounting standards have been encouraged to think of the Balance Sheet as a statement of the firm’s assets, with the increase in the net value of these assets between one period and the next used to represent the profit generated by the firm over that period. Content of the Balance Sheet The Balance Sheet can be thought of as a more detailed presentation of the accounting equation we came across in Chapter 1 : Assets = Liabilities + Capital Each of these terms will have a corresponding section on the Balance Sheet. It is common practice to subdivide the assets into two distinct classifications – that of non-current assets and current assets. Likewise, liabilities are also subdivided into two classifications – non-current liabilities and current liabilities. This means that the modern Balance Sheet for nearly all types of organization will consists of five separate sections. Assets Assets are the resources used within the business. These can either be owned outright by the business or have been purchased and financed by borrowing. As stated earlier, assets are divided into two categories: non-current assets and current assets. NON-CURRENT ASSETS Non-current assets (often referred to as fixed assets) are long-term assets that are likely to be held by the business for at least one year. They have normally been acquired specifically to add value to the business. They are not normally acquired to be sold (although they may well be sold at some point in the future, this wasn’t the reason why they were acquired)...
eBook - ePub- Debi J Peverill(Author)
- 2018(Publication Date)
- Painless Financial Training Group Inc.(Publisher)
...Chapter 3. Balance Sheet What are you going to do if someone hands you a Balance Sheet? Why do you care about a Balance Sheet? Did you read chapter 1 ? To begin with, don’t panic, the numbers can be explained. Keep this in mind—the primary purpose of a Balance Sheet is to show you what the organization has and what it owes. Now that is a simplification, but once you understand some of the weird things about a Balance Sheet you will have a better idea of stuck-up stuff like solvency and liquidity. And even equity. A Balance Sheet shows you the equity of a business, within reason. There are a bunch of accounting rules that you will need to understand, a little bit anyway, in order to understand what the Balance Sheet can tell you and what it cannot. First of all, Balance Sheets are historical documents, which means that the Balance Sheet shows you the financial status at a time that has already passed. If financial statements are talking about the future, they have words such as projected, forecast, or budgeted in their title. That is how you know you are dealing with predictions of the future. If the document just says Balance Sheet, then it is talking about a time in the past. You should note the date on the Balance Sheet because anything that has happened since then is not going to be reflected on the statement. Secondly, all accounting systems record transactions, transactions that have some proof, such as invoices, cheque copies, deposit books, receipts—you get the idea. So, if there has not been a transaction, then nothing is recorded in the books. Seems obvious but this will be more interesting to you once you understand the difference between cost and value. Do you want to know how much your business has and how much it owes? The Balance Sheet tells you what your business owns and owes at a certain point in time. It is composed of assets—what you own— and liabilities, what you owe...
