BALANCE SHEET-- A financial statement that summarizes a company’s assets, liabilities and shareholders’ equity at a specific point in time. These three balance sheet segments give investors an idea as to what the company owns and owes, as well a…
BALANCE SHEET--
A financial statement that summarizes a company's assets, liabilities and shareholders' equity at a specific point in time. These three balance sheet segments give investors an idea as to what the company owns and owes, as well as the amount invested by the shareholders.The balance sheet must follow the following formula:Assets = Liabilities + Shareholders' Equity.
Balance sheet fundamentals
A balance sheet shows two sides of the business, which you could think of as the financial yin and yang of the business:
Assets: On one side of the balance sheet the assets of the business are listed, which are the economic resources owned and being used in the business. The asset values reported in the balance sheet are the amounts recorded when the assets were originally acquired.
An asset is written down below its historical cost when the asset has suffered a loss in value. Some assets are written up to their current fair values. Some assets have been on the books only a few weeks or a few months, so their reported historical values are current. The values for other assets are their costs when they were acquired many years ago.
Sources of assets: On the other side of the balance sheet is a breakdown of where the assets came from, or their sources. Assets come from two basically different sources: creditors andowners.
Businesses borrow money in the form of interest-bearing loans that have to be paid back at a later date, and they buy things on credit that are paid for later. So, part of total assets can be traced to creditors, which are the liabilities of a business.
Every business needs to have owners invest capital (usually money) in the business. Also, businesses retain part or all of the annual profits they make, and profit increases the total assets of the business. The total of invested capital and retained profit is called owners' equity.
There are different ways to classify Balance Sheets:
Based on Format of Preparation:
Horizontal
Vertical
Based on the Usage:
Consolidated
Standalone (For Share Holders of the Group Entity or individual entity)
Based on the Period:
Previous Year Balance Sheet
Current Year Balance Sheet
Interesting post!
Interesting post!
