Business
Textbooks
Boundless Business
Financial Statements
The Balance Sheet
Business Textbooks Boundless Business Financial Statements The Balance Sheet
Business Textbooks Boundless Business Financial Statements
Business Textbooks Boundless Business
Business Textbooks
Business
Concept Version 9
Created by Boundless

Defining the Balance Sheet

The balance sheet is a summary of the financial balances of a company.

Learning Objective

  • Explain the fundamental elements of the balance sheet


Key Points

    • The balance sheet is often described as a snapshot of a company's financial condition.
    • Unlike the other basic financial statements, the balance sheet only applies to a single point in time of the calendar year.
    • It shows the assets, liabilities, and ownership equity of the company, and allows for an analysis of the company's financial health.

Terms

  • balance sheet

    A summary of a person's or organization's assets, liabilities and equity as of a specific date.

  • calendar year

    The amount of time between corresponding dates in adjacent years in any calendar.


Full Text

The Balance Sheet

In financial accounting, a balance sheet is a snapshot of a company's (sole proprietorship, a business partnership, a corporation, or other business organization, such as an LLC or an LLP) financial situation. Assets, liabilities, and ownership equity are listed as of a specific date, such as the end of the company's financial year. Of the four basic financial statements, the balance sheet is the only statement which applies to a single point in time of a business' calendar year. A standard company balance sheet has three parts: assets, liabilities, and ownership equity. The main categories of assets are usually listed first, and typically in order of liquidity. Assets are followed by the liabilities. The difference between the assets and the liabilities is known as the 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.

Another way to look at the same equation is that assets equals liabilities plus owner's equity. Looking at the equation in this way shows how assets were financed: either by borrowing money (liability) or by using the owner's money (owner's equity). Balance sheets are usually presented with assets in one section and liabilities and net worth in the other section with the two sections "balancing. "

A business operating entirely in cash can measure its profits by withdrawing the entire bank balance at the end of the period, plus any cash in hand. However, many businesses are not paid immediately; they build up inventories of goods and they 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.

Example Domestic Balance Sheet

This balance sheet shows the company's assets, liabilities, and shareholder equity.

[ edit ]
Edit this content
Prev Concept
The Accounting Cycle
Assets
Next Concept
Subjects
  • Accounting
  • Algebra
  • Art History
  • Biology
  • Business
  • Calculus
  • Chemistry
  • Communications
  • Economics
  • Finance
  • Management
  • Marketing
  • Microbiology
  • Physics
  • Physiology
  • Political Science
  • Psychology
  • Sociology
  • Statistics
  • U.S. History
  • World History
  • Writing

Except where noted, content and user contributions on this site are licensed under CC BY-SA 4.0 with attribution required.