A sheet that is always balanced: Balance Sheet

A sheet that is always balanced: Balance Sheet

Balance sheet shows the entity’s assets, liabilities, and stockholders’ equity as on the report date. Unlike income statement and statement of cash flow, balance sheet does not show information that covers a period of time. It is like a snapshot of company financial position at a point of time.  For an example, If the balance sheet report date is 10 August 2015, the number is captured  that instant when all the transactions through 10 August have been recorded. The balance sheet is also known as the statement of financial position.

Fundamental analyst look into balance sheet to see what a company owns as well as what it owes to other parties as of the date indicated in the heading. If current asset is more than current liabilities means that the company is in good financial position for growth using leverage.  Balance sheet also shown the amount of shareholder invested in the company.

The balance sheet is develop based on this following formula:

Assets = Liabilities + Shareholders’ Equity

Based on the formula above, balance sheet must equal each other, or balance each other out.

The major components of balance sheet as describe by the formula are:

  1. Assets Assets are things that the company owns. It is usually categorized into two; current/short term and non-current/long term assets.
  2. Liabilities – liabilities are things that the company owes. It is usually categorized into two; current/short term and non-current/long term liabilities.
  3. Owner’s/Stockholders’ Equity – Stockholders’ Equity is sometimes referred to as the book value of the company. It is because Stockholders’ Equity is equal to the reported asset amounts minus the reported liability amounts.

However, the exact template on a balance sheet report by company will differ by its industry or sector. There is no one set of format that can accurately accommodates for the differences between different types of businesses.

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