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Balance sheet

Accounting financial summary

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  • 2 labs on Lably

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Of the four basic financial statements, the balance sheet is the only statement that applies to a single point in time of a business's calendar year.

A standard company balance sheet typically lists assets, then liabilities, then owner's equity. Assets and liabilities themselves are typically listed in order of liquidity – "current" items with a maturity of less than one year, and "long-term" items with a maturity greater than one year. 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.

A business can measure its profits by subtracting its expenses from its revenues. However, many businesses are not paid immediately; they build up inventories of goods and 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.

Types

A balance sheet summarizes an organization's or individual's assets, equity and liabilities at a specific point in time. Two forms of balance sheet exist. They are the report form and account form. Individuals and small businesses tend to have simple balance sheets. Larger businesses tend to have more complex balance sheets, and these are presented in the organization's annual report. Large businesses also may prepare balance sheets for segments of their businesses. A balance sheet is often presented alongside one for a different point in time (typically the previous year) for comparison.

Personal

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, and 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.

US small business

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.

Charities

In England and Wales, smaller charities which are not also companies are permitted to file a statement of assets and liabilities instead of a balance sheet. This statement lists the charity's main assets and liabilities as at the end of its financial year.

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