Important_balance sheet information

8/7/2019 Important_balance sheet information

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Balance sheet

In financial accounting, a balance sheet orstatement of financial position is a summaryof the financial balances of a sole proprietorship, a business partnership or a company.

Assets,liabilities andownership equity are listed as of a specific date, such as the end ofitsfinancial year. A balance sheet is often described as a "snapshot of a company'sfinancial condition".[1]Of the four basic financial statements, the balance sheet is the onlystatement which applies to a single point in time of a business' calendar year.

A standard company balance sheet has three parts: assets, liabilities and ownershipequity. The main categories of assets are usually listed first, and typically in order ofliquidity.[2] Assets are followed by the liabilities. The difference between the assets andthe liabilities is known as equity or thenet assetsor the net worth or capital of thecompany and according to theaccounting equation, net worth must equal assets minusliabilities.[3]

Another way to look at the same equation is that assets equals liabilities plus owner'sequity. Looking at the equation in this way shows how assets were financed: either byborrowing money (liability) or by using the owner's money (owner's equity). Balancesheets are usually presented with assets in one section and liabilities and net worth in theother section with the two sections "balancing."

Records of the values of eachaccount or line in the balance sheet are usually maintainedusing a system of accounting known as thedouble-entry bookkeeping system.

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 businessesare not paid immediately; they build up inventories of goods and they acquire buildingsand equipment. In other words: businesses haveassets and so they can not, even if theywant to, immediately turn these into cash at the end of each period. Often, thesebusinesses owe money to suppliers and to tax authorities, and the proprietors do notwithdraw all their original capital and profits at the end of each period. In other wordsbusinesses also have liabilities.
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Contents

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1 Origin 2 Types

o 2.1 Personal balance sheet

o 2.2 US small business balance sheet

3 Public Business Entities balance sheet structureo 3.1 Assets

o 3.2 Liabilities

o 3.3 Equity

4 Sample balance sheet structure 5 See also

6 References

[edit] Origin

Annual balance sheet written in cuneiform script. Sumeria, clay, ca.2040BCE.Department of Oriental Antiquities, Louvre.

It was the Flemish mathematician Simon Stevin who persuaded merchants to make it a

rule to summarize accounts at the end of every year in a chapter entitledCoopmansbouckhouding op de Italiaensche wyse (Dutch: "Commercial Book-keeping inthe Italian Way") of his Wisconstigheg hedachtenissen (Dutch: "Mathematical memoirs",Leiden, 160508). Although the balance sheet he required every enterprise to prepareevery year was based on entries of the ledger, it was prepared separately from the majorbooks of account. The oldest semi-public balance sheet recorded was that of theEastIndia Companydated 30 April1671, which was submitted to the company's General
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Meeting on in 30 August 1671. The publication and audit of the balance sheet was still ararity in England until the passing of the Bank Charter Act 1844.[4]

[edit] Types

A balance sheet summarizes an organization or individual's assets, equity and liabilities ata specific point in time. Individuals and small businesses tend to have simple balancesheets.[5] Larger businesses tend to have more complex balance sheets, and these arepresented in the organization's annual report.[6] Large businesses also may preparebalance sheets for segments of their businesses.[7] A balance sheet is often presentedalongside one for a different point in time (typically the previous year) for comparison.[8][9]

[edit] Personal balance sheet

A personal balance sheet lists current assets such as cash inchecking accounts and

savings accounts, long-term assets such as common stockand real estate, currentliabilities such as loandebt and mortgage debt due, or overdue, long-term liabilities suchas mortgage and other loan debt. Securities and real estate values are listed atmarketvalue rather than at historical costorcost basis. Personal net worth is the differencebetween an individual's total assets and total liabilities.[10]

[edit] US small business balance sheet

Sample Small Business Balance Sheet[11]

Assets Liabilities and Owners' Equity

Cash $6,600LiabilitiesAccounts Receivable $6,200Notes Payable $30,000

Accounts Payable

Total liabilities $30,000

Tools and equipment $25,000Owners' equity

Capital Stock $7,000

Retained Earnings $800

Total owners' equity $7,800

Total $37,800 Total $37,800

A really small business balance sheet lists current assets such as cash,accountsreceivable, and inventory, fixed assets such as land, buildings, and equipment,intangibleassets such as patents, and liabilities such as accounts payable, accrued expenses, andlong-term debt. Contingent liabilities such as warranties are noted in the footnotes to thebalance sheet. The small business's equity is the difference between total assets and totalliabilities.[12]
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[edit] Public Business Entities balance sheet structure

Guidelines for balance sheets of public business entities are given by the InternationalAccounting Standards Committee and numerous country-specific organizations.

Balance sheet account names and usage depend on the organization's country and thetype of organization. Government organizations do not generally follow standardsestablished for individuals or businesses.[13][14][15][16]

If applicable to the business, summary values for the following items should be includedon the balance sheet:[17]

[edit] Assets

Current assets

1. Cash and cash equivalents2. Inventories3. Accounts receivable4. Prepaid expenses for future services that will be used within a year

Fixed assets

1. Property, plant and equipment2. Investment property, such as real estateheld for investment purposes3. Intangible assets

4. Financial assets (excluding investments accounted for using the equity method,accounts receivables, and cash and cash equivalents)5. Investments accounted for using the equity method6. Biological assets, which are living plants or animals. Bearer biological assets are

plants or animals which bear agricultural produce for harvest, such as apple treesgrown to produce apples and sheep raised to produce wool.[18]

[edit] Liabilities

1. Accounts payable2. Provisions for warranties or court decisions

3. Financial liabilities (excluding provisions and accounts payable), such aspromissory notes and corporate bonds

4. Liabilities and assets for current tax5. Deferred tax liabilities and deferred tax assets6. Minority interest in equity7. Issued capital and reservesattributable to equity holders of the Parent company8. Unearned revenue for services paid for by customers but not yet provided
http://en.wikipedia.org/w/index.php?title=Balance_sheet&action=edit&section=5http://en.wikipedia.org/wiki/International_Accounting_Standards_Committeehttp://en.wikipedia.org/wiki/International_Accounting_Standards_Committeehttp://en.wikipedia.org/wiki/Balance_sheet#cite_note-12%23cite_note-12http://en.wikipedia.org/wiki/Balance_sheet#cite_note-13%23cite_note-13http://en.wikipedia.org/wiki/Balance_sheet#cite_note-14%23cite_note-14http://en.wikipedia.org/wiki/Balance_sheet#cite_note-15%23cite_note-15http://en.wikipedia.org/wiki/Balance_sheet#cite_note-16%23cite_note-16http://en.wikipedia.org/w/index.php?title=Balance_sheet&action=edit&section=6http://en.wikipedia.org/wiki/Current_assethttp://en.wikipedia.org/wiki/Cash_and_cash_equivalentshttp://en.wikipedia.org/wiki/Cash_and_cash_equivalentshttp://en.wikipedia.org/wiki/Inventoryhttp://en.wikipedia.org/wiki/Inventoryhttp://en.wikipedia.org/wiki/Accounts_receivablehttp://en.wikipedia.org/wiki/Accounts_receivablehttp://en.wikipedia.org/wiki/Prepaid_expenseshttp://en.wikipedia.org/wiki/Prepaid_expenseshttp://en.wikipedia.org/wiki/Fixed_assethttp://en.wikipedia.org/wiki/Property,_plant_and_equipmenthttp://en.wikipedia.org/wiki/Property,_plant_and_equipmenthttp://en.wikipedia.org/wiki/Real_estatehttp://en.wikipedia.org/wiki/Real_estatehttp://en.wikipedia.org/wiki/Intangible_assethttp://en.wikipedia.org/wiki/Intangible_assethttp://en.wikipedia.org/wiki/Accounts_receivableshttp://en.wikipedia.org/wiki/Cash_equivalentshttp://en.wikipedia.org/wiki/Investments#Financehttp://en.wikipedia.org/wiki/Investments#Financehttp://en.wikipedia.org/wiki/Equity_methodhttp://en.wikipedia.org/wiki/Equity_methodhttp://en.wikipedia.org/wiki/Balance_sheet#cite_note-17%23cite_note-17http://en.wikipedia.org/wiki/Balance_sheet#cite_note-17%23cite_note-17http://en.wikipedia.org/wiki/Balance_sheet#cite_note-17%23cite_note-17http://en.wikipedia.org/w/index.php?title=Balance_sheet&action=edit&section=7http://en.wikipedia.org/wiki/Accounts_payablehttp://en.wikipedia.org/wiki/Accounts_payablehttp://en.wikipedia.org/wiki/Provision_(accounting)http://en.wikipedia.org/wiki/Provision_(accounting)http://en.wikipedia.org/wiki/Promissory_notehttp://en.wikipedia.org/wiki/Corporate_bondhttp://en.wikipedia.org/wiki/Taxhttp://en.wikipedia.org/wiki/Deferred_taxhttp://en.wikipedia.org/wiki/Deferred_taxhttp://en.wikipedia.org/wiki/Minority_interesthttp://en.wikipedia.org/wiki/Minority_interesthttp://en.wikipedia.org/wiki/Reserve_(accounting)http://en.wikipedia.org/wiki/Reserve_(accounting)http://en.wikipedia.org/wiki/Parent_companyhttp://en.wikipedia.org/w/index.php?title=Balance_sheet&action=edit&section=5http://en.wikipedia.org/wiki/International_Accounting_Standards_Committeehttp://en.wikipedia.org/wiki/International_Accounting_Standards_Committeehttp://en.wikipedia.org/wiki/Balance_sheet#cite_note-12%23cite_note-12http://en.wikipedia.org/wiki/Balance_sheet#cite_note-13%23cite_note-13http://en.wikipedia.org/wiki/Balance_sheet#cite_note-14%23cite_note-14http://en.wikipedia.org/wiki/Balance_sheet#cite_note-15%23cite_note-15http://en.wikipedia.org/wiki/Balance_sheet#cite_note-16%23cite_note-16http://en.wikipedia.org/w/index.php?title=Balance_sheet&action=edit&section=6http://en.wikipedia.org/wiki/Current_assethttp://en.wikipedia.org/wiki/Cash_and_cash_equivalentshttp://en.wikipedia.org/wiki/Inventoryhttp://en.wikipedia.org/wiki/Accounts_receivablehttp://en.wikipedia.org/wiki/Prepaid_expenseshttp://en.wikipedia.org/wiki/Fixed_assethttp://en.wikipedia.org/wiki/Property,_plant_and_equipmenthttp://en.wikipedia.org/wiki/Real_estatehttp://en.wikipedia.org/wiki/Intangible_assethttp://en.wikipedia.org/wiki/Accounts_receivableshttp://en.wikipedia.org/wiki/Cash_equivalentshttp://en.wikipedia.org/wiki/Investments#Financehttp://en.wikipedia.org/wiki/Equity_methodhttp://en.wikipedia.org/wiki/Balance_sheet#cite_note-17%23cite_note-17http://en.wikipedia.org/w/index.php?title=Balance_sheet&action=edit&section=7http://en.wikipedia.org/wiki/Accounts_payablehttp://en.wikipedia.org/wiki/Provision_(accounting)http://en.wikipedia.org/wiki/Promissory_notehttp://en.wikipedia.org/wiki/Corporate_bondhttp://en.wikipedia.org/wiki/Taxhttp://en.wikipedia.org/wiki/Deferred_taxhttp://en.wikipedia.org/wiki/Minority_interesthttp://en.wikipedia.org/wiki/Reserve_(accounting)http://en.wikipedia.org/wiki/Parent_company


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[edit] 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 thecompany'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 liabilitiesexcluding shareholders' equity. The balance of assets and liabilities (includingshareholders' equity) is not a coincidence. Records of the values of each account in thebalance sheet are maintained using a system of accounting known as double-entrybookkeeping. In this sense, shareholders' equity by construction must equal assets minusliabilities, and are a residual.

1. Numbers ofshares authorized, issued and fully paid, and issued but not fully paid2. Par value of shares3. Reconciliation of shares outstanding at the beginning and the end of the period4. Description of rights, preferences, and restrictions of shares

5. Treasury shares , including shares held bysubsidiariesand associates6. Shares reserved for issuance underoptions and contracts7. A description of the nature and purpose of each reserve within owners' equity

[edit] Sample balance sheet structure

The following balance sheet structure is just an example. It does not show all possiblekinds of assets, equity and liabilities, but it shows the most usual ones. Because it showsgoodwill, it could be a consolidatedbalance sheet. Monetary values are not shown,summary (total) rows are missing as well.

Balance Sheet of XYZ, Ltd. as of 31 December 2006

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 equipmentLess : 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)
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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 earnings
http://en.wikipedia.org/wiki/Accounts_payablehttp://en.wikipedia.org/wiki/Provision_(Accounting)http://en.wikipedia.org/wiki/Loanhttp://en.wikipedia.org/wiki/Security_(finance)http://en.wikipedia.org/wiki/Deferred_taxhttp://en.wikipedia.org/wiki/Provision_(Accounting)http://en.wikipedia.org/wiki/Minority_interesthttp://en.wikipedia.org/wiki/Share_capitalhttp://en.wikipedia.org/wiki/Reserve_(Accounting)http://en.wikipedia.org/wiki/Reserve_(Accounting)http://en.wikipedia.org/wiki/Reserve_(Accounting)http://en.wikipedia.org/wiki/Retained_earningshttp://en.wikipedia.org/wiki/Accounts_payablehttp://en.wikipedia.org/wiki/Provision_(Accounting)http://en.wikipedia.org/wiki/Loanhttp://en.wikipedia.org/wiki/Security_(finance)http://en.wikipedia.org/wiki/Deferred_taxhttp://en.wikipedia.org/wiki/Provision_(Accounting)http://en.wikipedia.org/wiki/Minority_interesthttp://en.wikipedia.org/wiki/Share_capitalhttp://en.wikipedia.org/wiki/Reserve_(Accounting)http://en.wikipedia.org/wiki/Reserve_(Accounting)http://en.wikipedia.org/wiki/Reserve_(Accounting)http://en.wikipedia.org/wiki/Retained_earnings


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inancial Statements Overview

1mponents of Balance Sheet

otal Assets = Total Liabilities + Total Stockholders' Equity

-> Accounting Equation

otal Assets= Current Assets + Investments + Property, Plant and Equipment

+ Intangible Assets + Other Non-Current Assetsotal Liabilities

= Current Liabilities + Long-Term Liabilitiesotal Stockholders' Equity

= Contributed Capital + Retained Earnings - Treasury Stock= Common Stock + Preferred Stock + Additional Paid-in Capital

+ Retained Earnings - Treasury Stock

nding Retained Earnings

= Beginning Retained Earnings + Net Income Dividends Declared

2bilities

rrent Liabilities

rrent liabilities include liabilities that are expected to be paid within a year from the balance sheet date.

Accounts payable (due within a year from the balance sheet date)

Notes payable (due within a year from the balance sheet date)Short-term borrowings

Salaries payableIncome taxes payable

Sales taxes payableCurrent maturities of long-term debt (due within a year from the balance sheet date)

Other current liabilities

ng-Term Liabilities

g-term liabilities include liabilities that are expected to be paid after a year from the balance sheet date.

Bonds payable

Long-term notes payable (due after a year from the balance sheet date)Long-term borrowings
http://accountinginfo.com/study/fs/fs-101.htmhttp://accountinginfo.com/study/fs/fs-comp-101.htmhttp://accountinginfo.com/study/fs/fs-101.htmhttp://accountinginfo.com/study/fs/fs-comp-101.htm


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3sets and Contra-Asset Accounts

rrent Assets

rrent Assets include assets that are expected to be converted into cash within a year from the balance sheet d

CashBank deposits

Accounts receivable (due within a year from the balance sheet date)Notes receivable (due within a year from the balance sheet date)

Marketable securitiesShort-term loans

Prepaid expensesOther current assets

ventories

entories include merchandise or goods that are ready to be sold, and other assets that are in the process ofducing goods.

Merchandise

Raw materialsWork-in-process (WIP)

Finished goods

operty, Plant, and Equipment (PP&E)

&E include tangible fixed assets that are used for the primary business operations.

Land

BuildingsMachinery

EquipmentVehicles

Leasehold improvements

cumulated Depreciation

umulated depreciation is a contra-asset account which is subtracted from asset accounts.

Land does not have accumulated depreciation, because land account is not depreciated.Accumulated depreciation, buildingsAccumulated depreciation, machinery

Accumulated depreciation, equipmentAccumulated depreciation, vehicles


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angible Assets

angible assets include assets that do not have physical substance, but provide future economic benefits.

TrademarkCopyright

PatentGoodwill

The amortization of intangible assets is

--> directly subtracted from the balance of related intangible assets.--> accounts such as "accumulated amortization" are not used for intangible assets.

her Assets

er assets include noncurrent assets that are not classified as one of the above accounts.

Long-term notes receivable (due after a year from the balance sheet date)

Long-term loans related companies


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4

ockholders' Equity

ntributed Capital

ntributed capital includes the amounts that are transferred from stockholders to the company.

Preferred stock (par value x number of preferred shares issued)Common stock (par value x number of common shares issued)

Additional paid in capital, preferred stock ( [issue price - par value] x number of preferred shares issued )

Additional paid in capital, common stock ( [issue price - par value] x number of common shares issued )Additional paid in capital is also called as "Paid-in capital in excess of par value".

tained Earnings

ained earnings represent the amount of the company's past net income retained inside the company (not pai

dend to stockholders.)

Retained earningsAccumulated deficit (if the amount of retained earnings is negative, it is called as "accumulated deficit".)

easury Stock

asury stock represents the company's common or preferred stock currently owned by the company it self, as ult of stock repurchase in the past.

e amount of treasury stock is subtracted from stockholders' equity.

Treasury stock (the amount of treasury stock is determined by either cost method or par value method.)


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5

counting EquationAssets = Liabilities + Equity

quity = Assets - Liabilities ---> Assets = Liabilities + Equity

Example]

Company A has $800,000 liabilities and $1,200,000 equity.How much assets does the Company A have?

Assets = Liabilities + Equity = $800,000 - $1,200,000 = $2,000,000

Assets = Liabilities + Equity

Liabilities = Assets - EquityEquity = Assets - Liabilities

rom any balance sheet,--> it can be verified that--> Total Assets = Total Liabilities + Total Stockholders' Equity.

setsAssets are

--> probable future economic benefits--> obtained or controlled by an entity

--> as a result of past transactions or events.

[SFAC No. 6., Para. 25]

Essential characteristics of assetsProbable future economics benefits

Obtained or controlled by an entityResult of past transactions or events.

Common characteristic of all assets

--> is service potential or future economic benefits[SFAC No. 6., Para. 28]

bilities

Liabilities are--> probable future sacrifices of economic benefits

--> arising from present obligations of an entity--> to transfer assets or provide services to other entities in the future

--> as a result of past transactions or events.[SFAC No. 6., Para. 35]

Essential characteristics of liabilities

Probable future sacrifices of economic benefitsPresent obligations to transfer assets or provide services in the future

Result of past transactions or events.

uity


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Equity (or net assets) is--> residual interests in the assets of an entity

--> that remains after deducting its liabilities.[SFAC No. 6., Para. 49]

Essential characteristics of equity

Equity is residual interests in the assets after deducting liabilitiesEquity = Assets - Liabilities

[Example]

Company A has $2,000,000 assets and $800,000 liabilities.How much equity does the Company A have?

Equity = Assets - Liabilities

= $2,000,000 - $800,000 = $1,200,000

venuesRevenues are

--> inflows of assets of an entity or

--> settlements of its liabilities (or a combination of both)--> from delivering or producing goods, rendering services.


Essential characteristics of revenues

Inflows of assets or settlements of liabilitiesFrom delivering goods or rendering services

penses

Expenses are--> outflows or other using up of assets or

--> incurrences of liabilities (or a combination of both) |

--> from delivering or producing goods, rendering services.[SFAC No. 6., Para. 80]

Essential characteristics of expensesOutflows of assets or incurrences of liabilities

from delivering goods or rendering services

insGains are

--> increases in equity (net assets)--> except those from revenues or investments by owners.


Essential characteristics of gainsIncreases in equity from transactions or events

Except those that result from revenues or investments by owners.

ssesLosses are

--> decreases in equity (net assets)--> except those from expenses or distributions to owners.



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Essential characteristics of losses

Decreases in equity from transactions or eventsExcept those that result from expenses or distributions to owners.

t Income and Owner's Equity

Assets = Liabilities + EquityAssets = Liabilities + Equity + Revenues - Expenses

Assets = Liabilities + Equity + Revenues - Expenses + Gains - Losses

Ending Assets = Ending Liabilities + Ending Owner's EquityEnding Owner's Equity

= Beginning Owner's Equity + Investment by Owner + Net Income

Net Income = Revenues - Expenses + Gains - Losses

Ending Owner's Equity

= Beginning Owner's Equity + Investment by Owner+ Revenues - Expenses + Gains - Losses

Ending Assets= Ending Liabilities + Ending Owner's Equity

= Ending Liabilities + Beginning Owner's Equity+ Investment by Owner + Net Income

= Ending Liabilities + Beginning Owner's Equity

+ Investment by Owner + Revenues - Expenses + Gains - Losses

If Investment by Owner = 0, Gains = 0, Losses = 0, then

Ending Assets = Ending Liabilities + Beginning Owner's Equity

+ Revenues - Expenses

Ending Assets = Ending Liabilities + Ending Owner's Equity

Assets = Liabilities + Owner's Equity

6


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Assets are reported on the balance sheet.

Asset accounts have normal balances on the debit side.Increase in assets is reported on the debit side of a journal entry.

Decrease in assets is reported on the creditside of a journal entry.

Liabilities are reported on the balance sheet.

Liability accounts have normal balances on the credit side.Increase in liabilities is reported on the credit side of a journal entry.Decrease in liabilities is reported on the debit side of a journal entry.

Owner's Equity is reported on the balance sheet.Owner's equity accounts have normal balances on the credit side.

Increase in owner's equity is reported on the credit side of a journal entry.

Decrease in owner's equity is reported on the debit side of a journal entry.

Revenues are reported on the income statement.Revenue accounts have normal balances on the credit side.

Increase in revenues is reported on the credit side of a journal entry.

Decrease in revenues is reported on the debit side of a journal entry.

Expenses are reported on the income statement.

Expense accounts have normal balances on the debit side.Increase in expenses is reported on the debit side of a journal entry.

Decrease in expenses is reported on the creditside of a journal entry.

Gains are reported on the income statement.Gain accounts have normal balances on the credit side.

Increase in gains is reported on the credit side of a journal entry.

Decrease in gains is reported on the debit side of a journal entry.

Losses are reported on the income statement.Loss accounts have normal balances on the debit side.Increase in losses is reported on the debit side of a journal entry.

Decrease in losses is reported on the creditside of a journal entry.

Documents

Important_balance sheet information