Sample Balance Sheet

Here I would like to come back to the concept of Balance Sheet and provide explanations on what items you can find on this financial statement and also present sample Balance Sheet for a better understanding how to compose it and what information is necessary for its preparation.

The Essence Of Balance Sheet

Coming back to the essence of Balance Sheet remember that it is one of the three main financial statements, which include:

1. Balance Sheet / 2. Income Statement / 3. Cash Flow Statement.

Balance Sheet reflects structure of the company's assets and financing sources used to finance these assets (i.e. equity and/or liabilities) as of particular date. This means that in this financial statement we can find information on what kind of assets business had on the particular day and how these assets were financed, i.e. either by the own means of shareholders (equity) or by the borrowed financial means (liabilities), or by the mix of these two sources.

From the name of this financial statement, i.e. Balance Sheet, we can understand that there should be a balance between its parts, i.e. Assets must be equal to the sum of Equity and Liabilities. This is true since this financial statement reflects the essence of the Accounting Equation.

Items On The Balance Sheet

The following items can be found on the Balance Sheet and will be included into the sample Balance Sheet:

I. Assets - these are physical (tangible) things or intangible items which have a monetary value and are owned by the business. On the Balance Sheet assets are divided into:

a) current assets - which are reasonably expected to be realized in cash or sold within one year or less in the normal operations of the business;

b) long-term (fixed) assets - permanent assets or relatively fixed in nature and used by the business in its operations for the period longer than one year.

II. Equity (Owners' equity) - residual claim against total assets of business after all the liabilities are deducted. In other words equity represents right of the shareholders to get share of the assets the business owns after all liabilities have been paid. Equity is not classified into current and long-term part since it does not have maturity date and there is no obligation to pay back equity to the shareholders. It might be done only after the liquidation of the business.

III. Liabilities - debts owed to third parties, i.e. creditors, which have a certain maturity date and must be repaid. Liabilities are also divided into 2 groups:

a) current liabilities - payable within the period of one year or shorter. Usually to be repaid back from the current assets

b) long-term liabilities - payable within the period longer than one year