What is Balance Sheet? Balance sheet or the statement of financial position is the financial statement which summarizes a company’s financial balance at a single point of time. Note that balance sheet is not created over a period of time rather a single point of time. Balance sheet summarizes a company’s assets, liabilities and shareholder’s equity. It provides investors with the knowledge of what a company owns versus what it owes. Balance sheet is an elaborated version of Accounting Equation. Accounting equation states that Assets equals to liabilities plus shareholders equity. In other word, Asset minus liabilities is known as a company’s net worth or shareholder’s equity.
Assets = Liabilities + Owner’s Equity
Balance sheet has three components; assets, liabilities and owners’ equity. Below are components of Balance sheet.
What are assets? Assets are anything of value that an organization owns such as plant, land and equipment. Assets can be either tangible or non-tangible. Tangible assets are anything that we can touch or feel such as machinery of a company. Intangible assets are anything that we can’t touch such as goodwill and knowledgebase. Along with tangible and intangible, assets are defined in balance sheet with two categories; current asset and long term assets. Current assets are any assets that a company can convert to cash within twelve months. Cash, account receivables, inventory, and raw materials are an organization’s current assets. Long term assets are type of assets that cannot be converted into cash within twelve months. Land, plant and equipment are an organization’s long term assets. Generally, asset sections start with most liquid assets.
Liabilities are anything that an organization owes. Similar to assets, liabilities can also be classified into two types, current liabilities and long term liabilities. Current liabilities of an organization can be paid off within twelve months. Accounts payable, employee salaries, and sales taxes are considered as current liabilities. Long term liabilities are liabilities that requires longer than 12 months to be paid off. Mortgage and long term loans are considered as long term liabilities.
Owner’s Equity is debt that a business owes to its shareholders or owners. It is also knows as net worth of a company. This is usually the amount the owner has funded to the company plus any retained income. Use the template above to construct a balance sheet.
Below is an example of balance sheet created by utilizing the template above. You can use the Balance Sheet Template above print it and turn it in as homework.
Balance Sheet Figure/Template
Balance sheet allows us to calculate various ratios such as debt to equity ratio, debt ratio, and return on equity. Use the ratio section within this site to calculate various types of ratios.
Income Statement – Build an income statement print and just turn it in as homework
Debt Ratio – Calculate debt ratio. Use the template to automatically calculate your homework.
Debt to equity ratio – calculate debt to equity ratio. Use the template to do your homework.
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