Definition of Balance Sheet and How it Looks
Poor accounting practices may cause some negative effects, especially on the company’s fiscal health. Therefore, it is important for an accountant to perform this job accurately, including when he is working on a balance sheet. This particular financial statement is a very vital financial statement that those who never made it need to take a look at a balance sheet example first before making it.
Definition of Balance Sheet
A balance sheet is one of the basic financial statements that show the total assets of a company at the end of the year. The company’s total assets are equal to liability and equity. From this statement, creditors, shareholders, and everyone who read it will be able to find out the financial condition of the company.
Different companies will have slightly different balance sheets. However, the segments of this financial statement are similar even though there are some different accounts in them. A balance sheet usually has three major segments. And each of them consists of several accounts. These are the segments of a balance sheet.
There are two kinds of assets, i.e. current assets and long-term assets. Current assets are those that can be converted into cash within a year. The examples of current assets are inventory, accounts receivable, and cash and equivalents. Meanwhile, long-term assets cannot be converted into cash within a year, e.g. fixed assets, intangible assets, and long-term investments.
Equity is money that is attributed to the shareholders or owners.
Liabilities are money that is indebted by the company. There are two types of liabilities, i.e. current liabilities and long-term liabilities. Examples of current liabilities are interest payable, wages payable, and bank indebtedness. Meanwhile, the examples of long-term liabilities are pension fund liability, long-term debt, and deferred tax liability.
A Balance Sheet Example
If you are going to make this financial statement and never make it before, you can take a look at a balance sheet example first. From this example, you will see that the three segments above are placed side by side, with total assets are on the left side while total liabilities and total shareholders’ equity are on the right side.
However, you can also arrange those three segments in one side only. When you are making it, you must not forget to write its heading. Moreover, you must also make it carefully and meticulously.
A balance sheet is an important financial statement. Along with statement of cash flows and income statement, a balance sheet is used for conducting fundamental analysis. The three of them is also used for calculating financial ratios.
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