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The Balance Sheet is one of the primary financial statements used in accounting. The Balance Sheet shows a snapshot of a business’s financial position at a point in time. There are two sections: Assets and Liabilities & Equity.
Not only does the Balance Sheet show individual and composite account balances, but the Balance Sheet itself is in balance. Assets must equal Liabilities and Equity.
Why is that? Because assets, which are ultimately those things that are valuable inside of a company, are balanced against the claims from lenders (liabilities) and owners (equity) on those assets.
On the Balance Sheet, assets are listed at the top followed by liabilities and then equity. This is what a Balance Sheet looks like:
| Balance Sheet | |
|---|---|
| As of Dec 31, XXXX | |
| Assets | |
| Current Assets | |
| Cash & Cash Equivalents | XXX |
| Accounts Receivable | XXX |
| Notes Receivable | XXX |
| Inventory | XXX |
| Prepaid Expenses | XXX |
| Non-Current Assets | |
| Property, Plant & Equipment | XXX |
| Land | XXX |
| Patents | XXX |
| Goodwill | XXX |
| Total Assets | XXX |
| Liabilities | |
| Current Liabilities | |
| Accounts Payable | XXX |
| Short-term Debt | XXX |
| Accrued Liabilities | XXX |
| Non-Current Liabilities | |
| Bonds Payable | XXX |
| Equity | |
| Common Stock | XXX |
| Additional Paid-in-Capital | XXX |
| Retained Earnings | XXX |
| Accumulated Other Comprehensive Income | XXX |
| Preference Share | XXX |
| Total Liabilities & Equity | XXX |
Assets are probable future inflows of economic benefits. On the Balance Sheet, assets are listed in order of their liquidity.
Current Assets are reasonably expected to be converted into cash, consumed, or sold during the normal operating cycle of the company or one year, whichever is longer. Current Assets include Cash and Cash Equivalents, Inventory, Accounts Receivable, Notes Receivable, and Prepaid Expenses.
Non-Current Assets are not reasonably expected to be converted into cash, consumed, or sold during the normal operating cycle of the company or one year, whichever is longer. These are assets that are directly used by the enterprise to generate revenues. Non-Current Assets include tangible assets like Land, Property, Plant, and Equipment. Non-Current Assets also include intangible assets like Goodwill, Patents, and other Intellectual Property.
Liabilities are probable future outflows of economic resources due to present obligations to transfer assets to other economic entities in the future based on past events or transactions. On the Balance Sheet, liabilities are listed by their due date as either Current or Non-Current.
Current Liabilities are obligations that will be paid off within the normal operating cycle of the company or one year, whichever is longer. Current Liabilities include Accounts Payable, Short-Term Debt, and Accrued Liabilities.
Non-Current Liabilities, sometimes known as Long-Term Liabilities, are obligations that will be paid off after the normal operating cycle of the business or one year, whichever is longer. Non-Current Liabilities include Bonds and Deferred Tax Liabilities.
Equity is the residual interest in the assets of a company after deducting the liabilities. Equity starts with the initial investment of owners.
Subsequent owner investments increase Equity, and distributions to owners decrease Equity. The business’s operational performance also affects Equity.
Equity includes Common Stock, Additional Paid-in-Capital, Retained Earnings, and Accumulated Other Comprehensive Income.
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Hi there! I'm Matt. I'm a Christian, husband and father of four. I'm a graduate of Calvin, Harvard, Cardiff and Johns Hopkins Universities. I have a PhD in Economics, an MBA in Finance and an MS in Data Analytics. I'm a numbers guy who can communicate well!
I began this service to work directly with the small and mid-sized business owners who grow our great country's economy. Since 1999, I've worked with owners across industries from high tech IT and robotics to small farmers and artists. I've also helped and advised nonprofits from churches to civic organizations.
I also served as a Finance Staff Officer and eventually as the National Division Chief for Measurement Research within the US Coast Guard. The research and methods I created there continue to guide strategic decisions to this day.
I enjoy being active outdoors, especially in wild lands. Hiking, biking and fly fishing are some of my favorite pastimes.
I also love dogs! I'm an AKC obedience evaluator, and I train service and therapy dogs.
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