Balance Sheet

Balance Sheet is one of the three main Financial Statements. It reflects structure of the company's assets and financing sources used to finance these assets as of particular date (i.e. as of year end).

Referring to the Accounting Equation, where:

Assets

Liabilities

Equity

Balance Sheet reflects the same principle, i.e. one side of the Balance Sheet represents Assets and the other side - Liabilities and Equity. The must be a balance between the total value of the Assets and the total value of Liabilities and Equity.

Assets are properties (can be material, immaterial, monetary) owned by the entity, i.e. any physical thing (tangible) or right (intangible) that has a monetary value. Assets usually are divided into Current Assets (cash and other assets that may reasonably be expected to realized in cash or sold or used within period less or equal to one year. Examples: inventory, cash, accounts receivable, prepaid expenses) and Long-term Assets (used by the entity for a period longer that one year. Examples: long-term investments, fixed assets, intangible long-term assets).

Liabilities are debts owned to outsiders, i.e. creditors. Divided into Current Liabilities, which are due within one year (accounts payable, salaries payable, taxes payable, interest payable) and Long-term Liabilities which are due after one year

Equity includes amounts invested in a business by owners, special kind of liability residual claim against assets of business after total liabilities are deducted. Includes Share Capital (financial means invested by the shareholders), Retained Earnings – net income retained in the business.

Below there is an example of the Balance Sheet:

You can see that total value of the Assets ($50650) equals to the total value of Liabilities ($17900) and Equity ($32750).

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