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In financial accounting, a balance sheet or statement of financial position is a summary of the value of all assets, liabilities and owners' equity for an organization or individual on a specific date, such as the end of its financial year. A balance sheet is often described as a "snapshot" of a company's financial condition on a given date. Of the four basic financial statements, the balance sheet is the only statement which applies to a single point in time, instead of a period of time.
A company balance sheet has three parts: assets, liabilities and shareholders' equity. The main categories of assets are usually listed first and are followed by the liabilities. The difference between the assets and the liabilities is known as the net assets or the net worth of the company. According to the accounting equation, net worth must equal assets minus liabilities.
Records of the values of each account or line in the balance sheet are usually maintained using a system of accounting known as the double-entry bookkeeping system.
A simple business operating entirely in cash could measure its profits by simply withdrawing the entire bank balance at the end of the period, plus any cash in hand. However, real businesses are not paid immediately; they build up inventories of goods to sell and they acquire buildings and equipment. In other words: businesses have assets and so they could not, even if they wanted to, immediately turn these into cash at the end of each period. Real businesses also 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.
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Corporate balance sheet structure
Guidelines for corporate balance sheets are given by the International Accounting Standards Committee and numerous country-specific organizations.
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.
If applicable to the business, summary values for the following items should be included on the balance sheet:
Assets
A. Current assets
- inventories
- accounts receivable
- cash and cash equivalents
B. Long-term assets
- 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.
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
- minority interest in equity
- issued capital and reserves attributable to equity holders of the parent company
Equity
The net assets shown by the balance sheet equals the third part of the balance sheet, which is known as the shareholders' equity. Formally, shareholders' equity is part of the company's liabilities: they are funds "owing" to shareholders (after payment of all other liabilities); usually, however, "liabilities" is used in the more restrictive sense of liabilities excluding shareholders' equity. The balance of assets and liabilities (including shareholders' equity) is not a coincidence. Records of the values of each account in the balance sheet are maintained using a system of accounting known as double-entry bookkeeping. In this sense, shareholders' equity by construction must equal assets minus liabilities, and are a residual.
- numbers of shares authorised, 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
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Sample balance sheet structure
The following balance sheet structure is just an example. It does not show all possible kinds of assets, equity and liabilities, but it shows the most usual ones. Because it shows Goodwill it could be a consolidated balance sheet. Monetary values are not shown, summary (total) rows are missing as well.
Balance Sheet of XYZ, Ltd. as at 31 December 2007
ASSETS
Current Assets
- Cash and cash equivalents
- Accounts receivable (debtors)
- Inventories
- Prepaid Expenses
- Investments held for trading
- Other current assets
Fixed Assets (Non-Current Assets)
- Property, plant and equipment
- Less : Accumulated Depreciation
- Goodwill
- Other intangible fixed assets
- Investments in associates
- Deferred tax assets
LIABILITIES and EQUITY
Creditors: amounts falling due within one year (Current Liabilities)
- Accounts payable
- Current income tax liabilities
- Current portion of bank loans payable
- Short-term provisions
- Other current liabilities
Creditors: amounts falling due after more than one year (Long-Term Liabilities)
- Bank loans
- Issued debt securities
- Deferred tax liability
- Provisions
- Minority interest
Equity
- Share capital
- Capital reserves
- Revaluation reserve
- Translation reserve
- Retained profit |
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