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Balance sheet definition Search

April 18, 2021

Accounting Books
What is a Balance Sheet?
Finance Books
A balance sheet lays out the ending balances in a company's asset, liability, and equity accounts as
of the date stated on the report.  As such, it provides a picture of what a business owns and owes, Operations Books
as well as how much as been invested in it. The balance sheet is commonly used for a great deal of
financial analysis of a business' performance. The balance sheet is one of the key elements in the Send us your e-mail address to
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financial statements, of which the other documents are the income statement and the statement of
discounts
*
cash flows. A statement of retained earnings may sometimes be attached.

Formula Used for a Balance Sheet

The information listed on the balance sheet must match the following formula: SUBMIT

Total assets = Total liabilities + Equity

Format of the Balance Sheet

The format of the balance sheet is not mandated by accounting standards, but rather by customary
usage. The two most common formats are the vertical balance sheet (where all line items are
presented down the left side of the page) and the horizontal balance sheet (where asset line items
are listed down the first column and liabilities and equity line items are listed in a later column). The
vertical format is easier to use when information is being presented for multiple periods.

What’s on the Balance Sheet?

The line items to be included in the balance sheet are up to the issuing entity, though common
practice typically includes some or all of the following items:

Current Assets:
 • Cash and cash equivalents

• Trade receivables and other receivables

• Investments

• Inventories
• Assets held for sale

Non-Current Assets:

• Property, plant, and equipment

• Intangible assets
• Goodwill

Current Liabilities:

• Trade payables and other payables

• Accrued expenses
• Current tax liabilities

• Current portion of long-term debt

• Other financial liabilities

• Liabilities held for sale

Non-Current Liabilities:

• Loans payable
• Deferred tax liabilities

• Other non-current liabilities

Equity:

• Capital stock
• Additional paid-in capital

• Retained earnings

Example of a Balance Sheet

Here is an example of a balance sheet:

Domicilio Corporation

Balance Sheet

(000s) as of 12/31/x2 as of 12/31/x1

ASSETS    
Current assets    

Cash and cash equivalents $135,000 $110,000

Trade receivables 70,000 62,000

Inventories 65,000 58,000

Other current assets 8,000 31,000

Total current assets 278,000 261,000

     

Non-current assets    

Property, plant, and equipment 275,000 260,000

Goodwill 40,000 40,000

Other intangible assets 72,000 70,000

Total non-current assets 387,000 370,000

     

Total assets $665,000 $631,000

     

LIABILITIES AND EQUITY    

Current liabilities    

Trade and other payables $105,000 $100,000

Short-term borrowings 50,000 90,000

Current portion of long-term borrowings 7,000 6,000

Current tax payable 21,000 14,000

Accrued expenses 5,000 3,000

Total current liabilities 188,000 213,000

     

Non-current liabilities    

Long-term debt 40,000 35,000

Deferred taxes 29,000 21,000

Total non-current liabilities 69,000 56,000

     

Total liabilities 257,000 269,000

     

Shareholders’ Equity    

Capital $150,000 $150,000

Additional paid-in capital 30,000 30,000

Retained earnings 228,000 182,000

Total equity 408,000 362,000

     

Total  liabilities and equity $665,000 $631,000

Current Assets on the Balance Sheet

Within the balance sheet, the following should be classified as current assets:

• Cash. This includes all liquid, short-term investments that are easily convertible into cash. Do
not include in current assets cash that is restricted, or to be used to pay down a long-term
liability.
• Marketable securities. This includes all securities that are held for trading.

• Accounts receivable. This includes all trade receivables, as well as all other types of
receivables that should be collected within one year.
• Prepaid expenses. This includes any prepayment that is expected to be used within one year.

• Inventory. This includes all raw materials, work in process, and finished goods items, less an
obsolescence reserve.

In general, any asset is classified as a current asset when there is a reasonable expectation that the
asset will be consumed within the next year, or within the operating cycle of the business. All other
assets are to be classified as non-current.

Current Liabilities on the Balance Sheet

Within the balance sheet, the following should be classified as current liabilities:

• Payables. This is all trade payables related to the purchase of goods or services from
suppliers.
• Accrued expenses. This is expenses incurred by the business, for which no supplier invoice
has yet been received.

• Short-term debt. This is loans for which payment is due within the next year.
• Unearned revenue. This is advance payments from customers that have not yet been earned
by the company.

In general, a liability is classified as current when there is a reasonable expectation that the liability
will come due within the next year, or within the operating cycle of the business. All other liabilities
are to be classified as non-current.

Balance Sheet Ratios

Some of the more common ratios that include balance sheet information are:

• Accounts receivable collection period

• Current ratio
• Debt to equity ratio

• Inventory turnover
• Quick ratio

• Return on net assets

• Working capital turnover ratio

Many of these ratios are used by creditors and lenders to determine whether they should extend
credit to a business, or perhaps withdraw existing credit.

Terms Similar to Balance Sheet

The balance sheet is also known as the statement of financial position.

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