What is a Balance Sheet

Balance Sheet of a business is one of the most important of its financial statements. It is also known as the Financial Position Statement of a business. In simple words balance sheet can be explained as the snapshot of a business position in terms of finances at the end of a specific period of time.

The standard format of the balance sheet includes three basic things assets, liabilities and the net worth or owner’s equity of the business. Assets are listed first in the balance sheet according to the main categories and their liquidation status. The assets are followed by liabilities that are long term and the short term obligations of a company. The difference between the assets and the liabilities is the total worth of the business and is calculated using the basic accounting equation.

A balance sheet shows the entire asset accounts used within a company. The titles of these asset accounts can be cash, investments, accounts receivable, inventory, prepaid insurance policy, land, building, equipment, trademarks, formulas and good will of the company. These may be categorized as intangible and tangible assets. This is the basic classification of assets however on balance sheet they are shown as under:-

  • Current Assets
  • Investment
  • Property and Equipment
  • Intangible Assets
  • Other

The classification of liabilities on balance sheet can be categorized as under:-

  • Current Liabilities
  • Long Term Liabilities
  • Total Liabilities

The Third part of the balance sheet is that of owner’s equity and it comprised of following attributes

  • Revenues and Capital of Parent Company
  • Interest associated with Equity

Balance sheet can be categorized further as personal balance sheet, small business balance sheet and corporate balance sheet.




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