In accounting a Balance Sheet provides a financial snap-shot in time of how the business is doing. It reflects the account balances of Assets, Liabilities, and Stockholders' Equity of a business for a particluar time; generally the end of a reporting period, such as month, quarter, or year. Investors and creditors analyze a Balance Sheet to assess the business and it's overall financial health. This financial statements reflects who owns more of the assets, creditors or stockholders.
***Remember the Asset Total will ALWAYS equal Liabilities plus Stockholders' Equity.
Below is an example of what a Balance Sheet may look like:
On the balance sheet, assets are listed from most liquid to least liquid (top to bottom). Liquidity is determined by how easy the asset can be turned into cash. Additionally, assets are segmented into current and long-term. An asset is typcially considered to be a current asset if it can be converted into cash in a year or less. A long-term asset is an asset that will take more than a year to convert to cash.
- Cash and Cash Equivalents
- Securities
- Accounts Receivable
- Inventory
- Prepaid Expenses
- Long-term investments
- Fixed Assets
- Intangible Assets
Liabilities are debts, money the company owes to suppliers, lenders, other creditors, or to operate business. Similar with assets, there are two types of liabilities; current and long-term. Current liabilities are to be paid in a year, while long-term liabilities must be paid after a year.
- Short-term debt (creditors)
- Interest payable
- Rent and Utilities
- Taxes
- Wages payable
- Prepayments
- Dividends Payable
- Long-term debt (i.e. mortgage)
- Tax Liabilities
In short, shareholders' equity is what remains once you subtract liabilities from assets, this is what the shareholders own. This section of the balance sheet reflects common stock, retained earnings, treasury stock, and if a company issues preferred stock, it would fall under shareholders' equity. While this is a side note, it is important to know that preferred shareholders are paid before common shareholders. Retained earnings is a companies net earnings and this is generally used to either invest in a business (i.e. improvements, new plants, equipment, research and development), or part (or all, really) can be a dividend distribution to shareholders.
It is important to note that the Cash account is listed first under Assets, then the additional Asset accounts will be listed below it. Liabilities will be listed, then totaled, and Stockholders' Equity is the sum of Common Stock and Retained Earnings. Retained Earnings comes from the Statement of Retained Earnings. Also note that while below reflects Assets and Liabilities, it is common to refer to them as Current Assets and Current Liabilities. These are used to determine working capital and the working capital ratio to measure a firms financial health, to name a few.
***Remember the Asset Total will ALWAYS equal Liabilities plus Stockholders' Equity.
Below is an example of what a Balance Sheet may look like:
Cash | $3,200 | Accounts Payable | $500 | ||||
Accounts Receivable | $1,000 | ||||||
Office Supplies | $400 | ||||||
Land | $17,500 | Common Stock | $21,000 | ||||
Retained Earnings | $600 | ||||||
Total Stockholders Equity | $21,600 | ||||||
Total Assets | $22,100 | Total Liabilities & Stockholders' Equity | $22,100 |
Assets
On the balance sheet, assets are listed from most liquid to least liquid (top to bottom). Liquidity is determined by how easy the asset can be turned into cash. Additionally, assets are segmented into current and long-term. An asset is typcially considered to be a current asset if it can be converted into cash in a year or less. A long-term asset is an asset that will take more than a year to convert to cash.
Current Assets
- Cash and Cash Equivalents
- Securities
- Accounts Receivable
- Inventory
- Prepaid Expenses
Long-Term Assets
- Long-term investments
- Fixed Assets
- Intangible Assets
Liabilities
Liabilities are debts, money the company owes to suppliers, lenders, other creditors, or to operate business. Similar with assets, there are two types of liabilities; current and long-term. Current liabilities are to be paid in a year, while long-term liabilities must be paid after a year.
Current Liabilities
- Short-term debt (creditors)
- Interest payable
- Rent and Utilities
- Taxes
- Wages payable
- Prepayments
- Dividends Payable
Long-Term Liabilities
- Long-term debt (i.e. mortgage)
- Tax Liabilities
Shareholders' Equity
In short, shareholders' equity is what remains once you subtract liabilities from assets, this is what the shareholders own. This section of the balance sheet reflects common stock, retained earnings, treasury stock, and if a company issues preferred stock, it would fall under shareholders' equity. While this is a side note, it is important to know that preferred shareholders are paid before common shareholders. Retained earnings is a companies net earnings and this is generally used to either invest in a business (i.e. improvements, new plants, equipment, research and development), or part (or all, really) can be a dividend distribution to shareholders.