Balance sheet 1

Balance sheet
Accountancy

Key concepts

Accountant · Bookkeeping · Cash and accrual basis · Constant Item Purchasing Power Accounting · Cost of goods sold · Debits and
credits · Double-entry system · Fair value accounting · FIFO & LIFO · GAAP / International Financial Reporting Standards · General
ledger · Historical cost · Matching principle · Revenue recognition · Trial balance

Fields of accounting

Cost · Financial · Forensic · Fund · Management · Tax

Financial statements

Balance sheet · Statement of cash flows · Statement of changes in equity · Statement of comprehensive income · Notes · MD&A

Auditing

Auditor's report · Financial audit · GAAS / ISA · Internal audit · Sarbanes–Oxley Act

Professional Accountants

ACCA · CA · CGA · CMA · CPA

In financial accounting, a balance sheet or statement of financial position is a summary of the financial balances of
a sole proprietorship, a business partnership or a company. Assets, liabilities and ownership equity are listed as of a
specific date, such as the end of its financial year. A balance sheet is often described as a "snapshot of a company's
financial condition".[1] Of the four basic financial statements, the balance sheet is the only statement which applies to
a single point in time of a business' calendar year.
A standard company balance sheet has three parts: assets, liabilities and ownership equity. The main categories of
assets are usually listed first, and typically in order of liquidity.[2] Assets are followed by the liabilities. The
difference between the assets and the liabilities is known as equity or the net assets or the net worth or capital of the
company and according to the accounting equation, net worth must equal assets minus liabilities.[3]
Another way to look at the same equation is that assets equals liabilities plus owner's equity. Looking at the equation
in this way shows how assets were financed: either by borrowing money (liability) or by using the owner's money
(owner's equity). Balance sheets are usually presented with assets in one section and liabilities and net worth in the
other section with the two sections "balancing."
Records of the values of each account or line in the balance sheet are usually maintained using a system of
accounting known as the double-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 businesses are not paid immediately; they build up inventories of
goods and they acquire buildings and equipment. In other words: businesses have assets and so they can not, even if
they want to, immediately turn these into cash at the end of each period. Often, these businesses owe money to
suppliers and to tax authorities, and the proprietors do not withdraw all their original capital and profits at the end of
each period. In other words businesses also have liabilities.
Balance sheet 2

Origin
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 entitled
Coopmansbouckhouding op de Italiaensche wyse
(Dutch: "Commercial Book-keeping in the Italian
Way") of his Wisconstighe ghedachtenissen (Dutch:
"Mathematical memoirs", Leiden, 1605–08). Although
the balance sheet he required every enterprise to
prepare every year was based on entries of the ledger, it
was prepared separately from the major books of
account. The oldest semi-public balance sheet recorded
was that of the East India Company dated 30 April
1671, which was submitted to the company's General
Meeting on 30 August 1671. The publication and audit
of the balance sheet was still a rarity in England until
the passing of the Bank Charter Act 1844.[4] Annual balance sheet written in cuneiform script. Sumeria, clay, ca.
2040 BCE. Department of Oriental Antiquities, Louvre.

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

Personal balance sheet

A personal balance sheet lists current assets such as cash in checking accounts and savings accounts, long-term
assets such as common stock and real estate, current liabilities such as loan debt and mortgage debt due, or overdue,
long-term liabilities such as mortgage and other loan debt. Securities and real estate values are listed at market value
rather than at historical cost or cost basis. Personal net worth is the difference between an individual's total assets and
total liabilities.[10]

US small business balance sheet

Sample Small Business Balance Sheet[11]

Assets Liabilities and Owners' Equity

Cash $6,600 Liabilities

Accounts $6,200 Notes Payable $30,000

Receivable

Accounts Payable

Total liabilities $30,000

Tools and equipment $25,000 Owners' equity

Capital Stock $7,000

Balance sheet 3

Retained $800
Earnings

Total owners' equity $7,800

Total $37,800 Total $37,800

A really small business balance sheet lists current assets such as cash, accounts receivable, and inventory, fixed
assets such as land, buildings, and equipment, intangible assets such as patents, and liabilities such as accounts
payable, accrued expenses, and long-term debt. Contingent liabilities such as warranties are noted in the footnotes to
the balance sheet. The small business's equity is the difference between total assets and total liabilities.[12]

Public Business Entities balance sheet structure

Guidelines for balance sheets of public business entities are given by the International Accounting Standards
Committee (now International Accounting Standards Board) and numerous country-specific organizations.
Balance sheet account names and usage depend on the organization's country and the type of organization.
Government organizations do not generally follow standards established for individuals or businesses.[13] [14] [15] [16]
If applicable to the business, summary values for the following items should be included in the balance sheet:[17]

Assets
Current assets
1. Cash and cash equivalents
2. Inventories
3. Accounts receivable
4. Prepaid expenses for future services that will be used within a year
Non-current assets (Fixed assets)
1. Property, plant and equipment
2. Investment property, such as real estate held for investment purposes
3. 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 method
6. Biological assets, which are living plants or animals. Bearer biological assets are plants or animals which bear
agricultural produce for harvest, such as apple trees grown to produce apples and sheep raised to produce
wool.[18]

Liabilities
1. Accounts payable
2. Provisions for warranties or court decisions
3. Financial liabilities (excluding provisions and accounts payable), such as promissory notes and corporate bonds
4. Liabilities and assets for current tax
5. Deferred tax liabilities and deferred tax assets
6. Unearned revenue for services paid for by customers but not yet provided
Balance sheet 4

Equity
The net assets shown by the balance sheet equals the third part of the balance sheet, which is known as the
shareholders' equity. It comprises:
1. Issued capital and reserves attributable to equity holders of the parent company (controlling interest)
2. Non-controlling interest in equity
Formally, shareholders' equity is part of the company'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 liabilities
excluding shareholders' equity. The balance of assets and liabilities (including shareholders' equity) is not a
coincidence. Records of the values of each account in the balance sheet are maintained using a system of accounting
known as double-entry bookkeeping. In this sense, shareholders' equity by construction must equal assets minus
liabilities, and are a residual.
Regarding the items in equity section, the following disclosures are required:
1. Numbers of shares authorized, issued and fully paid, and issued but not fully paid
2. Par value of shares
3. Reconciliation of shares outstanding at the beginning and the end of the period
4. Description of rights, preferences, and restrictions of shares
5. Treasury shares, including shares held by subsidiaries and associates
6. Shares reserved for issuance under options and contracts
7. A description of the nature and purpose of each reserve within owners' equity

Sample balance sheet

The following balance sheet is a very brief example prepared in accordance with IFRS. It does not show all possible
kinds of assets, liabilities and equity, but it shows the most usual ones. Because it shows goodwill, it could be a
consolidated balance sheet. Monetary values are not shown, summary (total) rows are missing as well.

Balance Sheet of XYZ, Ltd.

As of 31 December 2009

ASSETS
Current Assets
Cash and Cash Equivalents
Accounts Receivable (Debtors)
Less : Allowances for Doubtful Accounts
Inventories
Prepaid Expenses
Investment Securities (Held for trading)
Other Current Assets
Non-Current Assets (Fixed Assets)
Property, Plant and Equipment (PPE)
Less : Accumulated Depreciation
Investment Securities (Available for sale/Held-to-maturity)
Investments in Associates
Intangible Assets (Patent, Copyright, Trademark, etc.)
Less : Accumulated Amortization
Goodwill
Other Non-Current Assets, e.g. Deferred Tax Assets, Lease Receivable
Balance sheet 5

LIABILITIES and SHAREHOLDERS' EQUITY

LIABILITIES
Current Liabilities (Creditors: amounts falling due within one year)
Accounts Payable
Current Income Tax Payable
Current portion of Loans Payable
Short-term Provisions
Other Current Liabilities, e.g. Unearned Revenue, Deposits

Non-Current Liabilities (Creditors: amounts falling due after more than one year)
Loans Payable
Issued Debt Securities, e.g. Notes/Bonds Payable
Deferred Tax Liabilities
Provisions, e.g. Pension Obligations
Other Non-Current Liabilities, e.g. Lease Obligations
SHAREHOLDERS' EQUITY
Paid-in Capital
Share Capital (Ordinary Shares, Preference Shares)
Share Premium
Less: Treasury Shares
Retained Earnings
Revaluation Reserve
Accumulated Other Comprehensive Income

Non-Controlling Interest

See also
• Balance sheet substantiation • Model audit
• Income statement • National accounts
• Cash flow statement • Off-balance-sheet
• Statement of retained earnings (statement of changes in equity) • Reformatted balance sheet
• Minority interest • Sheet

References
[1] Williams, Jan R.; Susan F. Haka, Mark S. Bettner, Joseph V. Carcello (2008). Financial & Managerial Accounting. McGraw-Hill Irwin.
pp. 40. ISBN 9780072996500.
[2] Daniels, Mortimer (1980). Corporation Financial Statements. New York: New York : Arno Press. pp. 13–14. ISBN 0405135149.
[3] Williams, p.50
[4] Takatera, Sadao: Early experiences of the British balance sheet, Kyoto University Economic Review, Vol. 83, October 1962, p.37-38, 41,
44-45 (http:/ / www. econ. kyoto-u. ac. jp/ review/ 10000361. pdf)
[5] "US Small Business Administration sample spreadsheet for a small business" (http:/ / web. archive. org/ web/ 20070715223932/ http:/ / www.
sba. gov/ library/ balsheet. xls). Archived from the original on 2007-07-15. . Retrieved 2003-08-10.
[6] Microsoft Corporation balance sheet, June 30, 2004 (http:/ / www. microsoft. com/ msft/ ar04/ nonflash/ 10k_fr_bs. html)
[7] International Business Machines "Global Financing" balance sheet comparing 2003 to 2004 (http:/ / www. ibm. com/ annualreport/ 2004/
annual/ md_8fc. shtml)
[8] Balance sheet comparing two year-end balance sheets (http:/ / www. xbrl. org/ taxonomy/ int/ fr/ ifrs/ ci/ 2003-07-15/
ifrs-ci-2003-07-15_files/ image016. jpg)
[9] "Balance sheet comparing two year-end balance sheets" (http:/ / web. archive. org/ web/ 20071019044218/ http:/ / www. timberry. com/ fm/
BalanceSheet5-1-04. png). Archived from the original on 2007-10-19. . Retrieved 2010-05-08.
Balance sheet 6

[10] "Personal balance sheet structure" (http:/ / web. archive. org/ web/ 20080307003615/ http:/ / www. state. co. us/ oed/ sbdc/ business/ pbs.
pdf). Archived from the original on 2008-03-07. . Retrieved 2010-05-08.
[11] Williams, p. 50.
[12] Small Business Administration (http:/ / www. sba. gov/ services/ financialassistance/ basics/ statement/ finst_balsheet. html)
[13] "Personal balance sheet structure" (http:/ / web. archive. org/ web/ 20071119100727/ http:/ / www. fp. ucalgary. ca/ financial/ coa/
balancesheet. htm). Archived from the original on 2007-11-19. . Retrieved 2010-05-08.
[14] University of Victoria (Canada) balance sheet accounts (http:/ / www. finance. uvic. ca/ accounts/ bsvsop. shtml)
[15] State of Alabama (USA) balance sheet accounts (http:/ / www. comptroller. state. al. us/ pdfs/ ChartofAccts/ bacc. pdf)
[16] New York State (USA) public utilities balance sheet accounts (http:/ / www3. dps. state. ny. us/ N/ nycrr16. nsf/ Parts/
763994601AEFFF5A85256FC80060B523?OpenDocument)
[17] "Presentation of Financial Statements" (http:/ / www. iasplus. com/ standard/ ias01. htm) International Accounting Standards Board.
Accessed 24 June 2007.
[18] Epstein, Barry J.; Eva K. Jermakowicz (2007). Interpretation and Application of International Financial Reporting Standards. John Wiley
& Sons. pp. 931.. ISBN 9780471798231.
Article Sources and Contributors 7

Article Sources and Contributors

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File:Balance sheet Mesopotamia Louvre AO6036.jpg  Source: http://en.wikipedia.org/w/index.php?title=File:Balance_sheet_Mesopotamia_Louvre_AO6036.jpg  License: Public Domain
 Contributors: User:Jastrow

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