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.[2] Assets are followed by the liabilities. The difference between the assets and the liabilities is known as 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.[3]
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 can not, 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.
Types
A balance sheet summarizes an organization or individual's assets, equity and liabilities at a specific point in time. Individuals and small businesses tend to have simple balance sheets.[4] Larger businesses tend to have more complex balance sheets, and these are presented in the organization's annual report.[5] Large businesses also may prepare balance sheets for segments of their businesses.[6] A balance sheet is often presented alongside one for a different point in time (typically the previous year) for comparison.[7][8][edit] Personal balance sheet
A personal balance sheet lists current assets such as cash in checking accounts and savings accounts, long-term assets such as common stock and real estate, current liabilities such as loan debt and mortgage debt due, or overdue, long-term liabilities such as mortgage and other loan debt. Securities and real estate values are listed at market value rather than at historical cost or cost basis. Personal net worth is the difference between an individual's total assets and total liabilities.[9][edit] US small business balance sheet
| Assets | Liabilities and Owners' Equity | |||
|---|---|---|---|---|
| Cash | $6,600 | Liabilities | ||
| Accounts Receivable | $6,200 | Notes Payable | $30,000 | |
| Accounts Payable | ||||
| Total liabilities | $30,000 | |||
| Tools and equipment | $25,000 | Owners' equity | ||
| Capital Stock | $7,000 | |||
| Retained Earnings | $800 | |||
| Total owners' equity | $7,800 | |||
| Total | $37,800 | Total | $37,800 | |
[edit] Public Business Entities balance sheet structure
Guidelines for balance sheets of public business entities are given by the International Accounting Standards Committee (now International Accounting Standards Board) and numerous country-specific organizations/companys.Balance sheet account names and usage depend on the organization's country and the type of organization. Government organizations do not generally follow standards established for individuals or businesses.[12][13][14][15]
If applicable to the business, summary values for the following items should be included in the balance sheet:[16] Assets are all the things the business own, this will include propriety tools, cars, etc.
[edit] Assets
Current assets- Cash and cash equivalents
- Inventories
- Accounts receivable
- Prepaid expenses for future services that will be used within a year
- Property, plant and equipment
- Investment property, such as real estate held for investment purposes
- Intangible assets
- Financial assets (excluding investments accounted for using the equity method, accounts receivables, and cash and cash equivalents)
- Investments accounted for using the equity method
- Biological assets, which are living plants or animals. Bearer biological assets are plants or animals which bear agricultural produce for harvest, such as apple trees grown to produce apples and sheep raised to produce wool.[17]
[edit] Liabilities
- Accounts payable
- Provisions for warranties or court decisions
- Financial liabilities (excluding provisions and accounts payable), such as promissory notes and corporate bonds
- Liabilities and assets for current tax
- Deferred tax liabilities and deferred tax assets
- Unearned revenue for services paid for by customers but not yet provided
[edit] Equity
The net assets shown by the balance sheet equals the third part of the balance sheet, which is known as the shareholders' equity. It comprises:- Issued capital and reserves attributable to equity holders of the parent company (controlling interest)
- Non-controlling interest in equity
Regarding the items in equity section, the following disclosures are required:
- Numbers of shares authorized, issued and fully paid, and issued but not fully paid
- Par value of shares
- Reconciliation of shares outstanding at the beginning and the end of the period
- Description of rights, preferences, and restrictions of shares
- Treasury shares, including shares held by subsidiaries and associates
- Shares reserved for issuance under options and contracts
- A description of the nature and purpose of each reserve within owners' equity
