Balance Sheet is the financial statement of company’s Assets, Liabilities and Shareholder’s equity at a specific point of time. The purpose of this balance sheet is to know the financial health of an organization. Based on this we can conclude whether the company owns and owes, as well as the amount invested by shareholders.
The formula for Balance sheet is Assets=Liabilities+ Shareholder’s Equity
The balance sheet has two sides which are Assets and combining of Liabilities and Shareholder’s equity that must be equal or balance. The logic behind it is simpler than it seems: a company must pay for its assets by borrowing money from lenders or through investors.
These are Resources of Company such as cash, property and equipment, inventory, accounts receivables and more. And can be converted into cash.
- Temporary Investments
- Accounts Receivable
- Prepaid Insurance
- Land Improvements
In the balance sheet, the Assets are classified into Current Assets, Investors, property, plant, equipment, intangible Assets and Other Assets.
A liability is an amount that a company owes. Typically, a liability involves money borrowed from others in order to support business activities, so can also include accounts payable and general debt.it provides an idea of how stable a business is, as well as whether accounts are overdue.
- Accounts payable (supplier invoices)
- Income tax deductions
- Pension plan contributions
- Medical plan payments
- Building and equipment rents
- Customer deposits (advance payments for goods or services to be delivered)
Temporary loans, lines of credit, or overdrafts
- Sales tax and/or goods and services tax charged on purchases
These come under Current Liabilities.
- Long-term debt
- Pension fund liability
- Deferred tax liability
Equity means after subtracting the liabilities from Assets. These are Total Assets so these net earnings a company either reinvest in the business or uses to pay off debt; the rest is distributed to shareholders in the form of dividends
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