Balance sheet
The examples and perspective in this article deal primarily with the United States and do not represent a worldwide view of the subject. (July 2019) |
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Of the four basic financial statements, the balance sheet is the only statement which applies to a single point in time of a business's calendar year.[2]
A standard company balance sheet has two sides: assets on the left, and financing on the right–which itself has two parts; liabilities and ownership equity. The main categories of assets are usually listed first, and typically in order of liquidity.[3] 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.[4]
Another way to look at the balance sheet equation is that total 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 or shareholders' 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 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.
Types
A balance sheet summarizes an organization's or individual's assets, equity and liabilities at a specific point in time. Two forms of balance sheet exist. They are the report form and account form. Individuals and small businesses tend to have simple balance sheets.[5] Larger businesses tend to have more complex balance sheets, and these are presented in the organization's annual report.[6] Large businesses also may prepare balance sheets for segments of their businesses.[7] A balance sheet is often presented alongside one for a different point in time (typically the previous year) for comparison.[8][9]
Personal
A personal balance sheet lists current assets such as cash in
US small business
Assets (current) | Liabilities and Owners' Equity | |||
---|---|---|---|---|
Cash | $6,600 | Liabilities | ||
Accounts Receivable | $6,200 | Notes Payable | $5,000 | |
Assets (fixed) | Accounts Payable | $25,000 | ||
Tools and equipment | $25,000 | Total liabilities | $30,000 | |
Owners' equity | ||||
Capital Stock | $7,000 | |||
Retained Earnings | $800 | |||
Total owners' equity | $7,800 | |||
Total | $37,800 | Total | $37,800 |
A small business balance sheet lists current assets such as cash,
Charities
In
Public business entities structure
Guidelines for balance sheets of public business entities are given by the
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.[14][15][16]
If applicable to the business, summary values for the following items should be included in the balance sheet:[17] Assets are all the things the business owns. This will include property, tools, vehicles, furniture, machinery, and so on.
Assets
- Accounts receivable
- Cash and cash equivalents
- Inventories
- Cash at bank, Petty Cash, Cash On Hand
- Prepaid expensesfor future services that will be used within a year
- Revenue Earned In Arrears (Accrued Revenue) for services done but not yet received for the year
- Loan To (Less than one financial period)
- Property, plant and equipment
- Investment property, such as real estate held for investment purposes
- Intangible assets, such as patents, copyrights and goodwill
- Financial assets (excluding investments accounted for using the equity method, cash equivalents), such as notes receivables
- 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.[18]
- Loan To (More than one financial period)
Liabilities
- Accounts payable
- Provisions for warranties or court decisions (contingent liabilities that are both probable and measurable)
- Financial liabilities (excluding provisions and accounts payables), 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
- Interests on loan stock
- Creditors' equity
Net current assets
Net current assets means current assets minus current liabilities.[19]
Equity / capital
The net assets shown by the balance sheet equals the third part of the balance sheet, which is known as the
- Issued capital and parent company(controlling interest)
- Non-controlling interest in 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" are 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 thus the shareholders' equity is considered to be a residual.
Regarding the items in the 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 subsidiariesand associates
- Shares reserved for issuance under options and contracts
- A description of the nature and purpose of each reserve within owners' equity
Substantiation
Balance sheet substantiation is the accounting process conducted by businesses on a regular basis to confirm that the balances held in the primary accounting system of record (e.g. SAP, Oracle, other ERP system's General Ledger) are reconciled (in balance with) with the balance and transaction records held in the same or supporting sub-systems.
Balance sheet substantiation includes multiple processes including reconciliation (at a transactional or at a balance level) of the account, a process of review of the reconciliation and any pertinent supporting documentation and a formal certification (sign-off) of the account in a predetermined form driven by corporate policy.
Balance sheet substantiation is an important process that is typically carried out on a monthly, quarterly and year-end basis. The results help to drive the regulatory balance sheet reporting obligations of the organization.
Historically, balance sheet substantiation has been a wholly manual process, driven by
Balance sheet substantiation is a key control process in the
Sample
The following balance sheet is a very brief example prepared in accordance with
Under IFRS items are always shown based on liquidity from the least liquid assets at the top, usually land and buildings to the most liquid, i.e. cash. Then liabilities and equity continue from the most immediate liability to be paid (usual account payable) to the least i.e. long-term debt such as mortgages and owner's equity at the very bottom.[20]
Consolidated Statement of Finance Position of XYZ, Ltd. As of 31 December 2025
ASSETS Non-Current Assets (Fixed Assets)Property, Plant and Equipment(PPE) Less :Accumulated DepreciationGoodwill Intangible Assets (Patent, Copyright, Trademark, etc.) Less : Accumulated Amortization Investments inFinancial assetsdue after one year Investments in Associates and Joint Ventures Other Non-Current Assets, e.g.Deferred Tax Assets, Lease Receivableand Receivables due after one yearCurrent AssetsInventoriesPrepaid ExpensesInvestments inFinancial assetsdue within one year Non-Current and Current Assets Held for saleAccounts Receivable(Debtors) due within one year Less : Allowances for Doubtful debtsCash and Cash Equivalents
TOTAL ASSETS (this will match/balance the total for Liabilities and Equity below)
LIABILITIES and EQUITY Current Liabilities (Creditors: amounts falling due within one year)Accounts PayableCurrent Income Tax Payable Current portion of Loans Payable Short-term Provisions Other Current Liabilities, e.g. Deferred income, Security deposits Non-Current Liabilities (Creditors: amounts falling due after more than one year) Loans Payable Issued Debt Securities, e.g. Notes/Bonds PayableDeferred TaxLiabilities Provisions, e.g. Pension Obligations Other Non-Current Liabilities, e.g. Lease Obligations EQUITYPaid-in CapitalShare Capital (Ordinary Shares, Preference Shares)Share PremiumLess:Treasury SharesRetained EarningsRevaluation Reserve Other Accumulated ReservesAccumulated Other Comprehensive IncomeNon-Controlling Interest
TOTAL LIABILITIES and EQUITY (this will match/balance the total for Assets above)
See also
- Cash flow statement
- Income statement
- Minority interest
- Model audit
- National accounts
- Off-balance-sheet
- Reformatted balance sheet
- Sheet
- Statement of changes in equity
References
- ISBN 978-0-07-299650-0.
- ^ "Four Types of Financial Statements". William & Mary. 2022-11-28. Retrieved 2024-02-15.
- ISBN 0-405-13514-9.
- ^ Williams, p.50
- ^ "US Small Business Administration sample spreadsheet for a small business". Archived from the original on 2007-07-15. Retrieved 2003-08-10.
- ^ "Microsoft Corporation balance sheet, June 30, 2004". Microsoft.com. Retrieved 2012-10-04.
- ^ "International Business Machines "Global Financing" balance sheet comparing 2003 to 2004". Ibm.com. Retrieved 2012-10-04.
- ^ "Balance sheet comparing two year-end balance sheets". Retrieved 2012-10-04.
- ^ "Balance sheet comparing two year-end balance sheets". Archived from the original on 2007-10-19. Retrieved 2010-05-08.
- ^ "Personal balance sheet structure" (PDF). Archived from the original (PDF) on 2008-03-07. Retrieved 2010-05-08.
- ^ Williams, p. 50.
- ^ "Get more funding". Business Guide. U.S. Small Business Administration. Retrieved 2022-07-15.
- ^ Charity Commission for England and Wales, Receipts and Payments Accounts Introductory Notes, document CC16b, published June 2013, new format January 2017, accessed 16 November 2023
- ^ "Personal balance sheet structure". Archived from the original on 2007-11-19. Retrieved 2010-05-08.
- ^ "STATE OF ALABAMA CHART OF ACCOUNTS" (PDF). Archived from the original (PDF) on 2007-07-29. Retrieved 2007-09-21.
- ^ "New York State (USA) public utilities balance sheet accounts". Archived from the original on 2017-03-24. Retrieved 2012-07-24.
- ^ "Presentation of Financial Statements" International Accounting Standards Board. Accessed 24 June 2007.
- ISBN 978-0-471-79823-1.
- ^ Accounting Tools, Inc., Net current assets definition, published 28 October 2023, accessed 15 November 2023
- ^ "IFRS VS GAAP: BALANCE SHEET AND INCOME STATEMENT". Accounting-financial-tax.com. Archived from the original (web) on 2019-04-30. Retrieved 2016-05-14.