It is a type of document to keep the summary of all the financial balances of an organization. You can also describe it as a snapshot of a company’s financial status. It is the only statement applicable at the time of the business’s calendar year. An average company’s Balance sheet has two sides:
Assets: Available on the left side of the sheet of the company.
Financing: Available on the right side of the sheet of the company. It also has two parts:
- Liabilities
- Ownership equity
The main categories of assets in any Balance sheet are usually listed first. As liability follows, the assets and the difference between liabilities and assets usually defines in terms of net worth and equity of the company. One of the many ways of looking at the Balance sheet equation is that total assets should equal liabilities as well as owner’s equity. This equation defines the process of asset financing by borrowing money or by taking it from the owner’s money.
The Balance sheet is usually represented in two sections, one defines the assets, and the second section defines the liabilities and net worth. A fully cash-rich business can measure its profit by withdrawing the entire balance from the bank and hand-in cash at the end of the period. However, many business holders do not receive payment immediately; They first have to create inventions of goods. Often, the owners of such businesses pay money to suppliers and tax authorities at the end of the period they are unable to withdraw all of their original capital and profits. Such types of businesses also have liabilities. There are two types of Balance sheets.
Types of the Balance sheets:
It is a document summarizing the assets, equity, and liabilities of an organization or an individual at a specific time. Two types of Balance sheets exist. One is the report form, and the other is the account form. Small and large businesses have separate sheets. The Balance sheet of a small business is simple, and the one of a large business is complex.
Personal:
A personal sheet shows the list of current and long term liabilities, current assets, and long term assets. Such as checking and savings accounts, common stock and real estate stock, loan debt, and mortgage. Securities and real estate values are listed at market value and not at historical value or cost values. So, the personal net worth is the difference between the assets and liabilities of an individual.
US small business:
A small business sheet shows the list of current assets, fixed assets, intangible assets, liabilities, and contingent liabilities, such as account receivable amount, cash, inventory, land, equipment, buildings, patents, payable accounts, accrued expenses, and noted warranties. The small business equity is the difference between the total assets and total liabilities of a business.
Entities structure:
Assets: Assets are the things owned by any type of business like property, furniture, vehicles, machines, and many more things.
Current assets:
- Cash: Cash at the bank, cash on hand, petty cash.
- Account receivable
- Inventories
- Prepaid expenses
- Earned revenue
Non-current/ fixed assets:
- Equipment, property
- Real estate
- Patents, goodwill, and copyrights
- Notes receivable
- Living plants or animals (Biological assets)
Laiabilities:
- Account payable
- Contingent liabilities like provisions for warranties
- Financial liabilities promissory notes and corporate bonds.
- Assets and liabilities for the current tax
- Deferred tax liabilities and assets
- Unearned revenue
- Interests on loan stock
Conclusion
The Balance sheets are the combination of Assets, liabilities, and owner equity of any business. The document is used to keep track of all the profit and loss of business at the end of the year. Many large companies prepare their sheets according to their business segments.