What is a Balance Sheet? Discuss the main items listed on a balance sheet.

Balance Sheet is the financial statement of a company which includes assets, liabilities, equity capital, total debt, etc. at a point in time. Balance sheet includes assets on one side, and liabilities on the other. For the balance sheet to reflect the true picture, both heads (liabilities & assets) should tally (Assets = Liabilities + Equity).

Description: Balance sheet is more like a snapshot of the financial position of a company at a specified time, usually calculated after every quarter, six months or one year. Balance Sheet has two main heads –assets and liabilities. 

Let’s understand each one of them. What are assets? Assets are those resources or things which the company owns. They can be divided into current as well as non-current assets or long term assets.

Liabilities on are debts or obligations of a company. It is the amount that the company owes to its creditors. Liabilities can be divided into current liabilities and long term liabilities.

Another important head in the balance sheet is shareholder or owner’s equity. Assets are equal to total liabilities and owners’ equity. Owner’s equity is used when the company is a sole proprietorship and shareholders’ equity is used when the company is a corporation. It is also known as book value of the company.

Let’s understand reporting of a transaction on a balance sheet. If a company XYZ takes a five-year loan from public sector banks for an amount of Rs 5,00,000, it means that the bank will pay the money to XYZ Ltd.

The accounts department will increase the cash component by 5,00,000 on the assets front, and at the same time increase the long term debt account with the same amount, thus balancing both the sides.

If company raises Rs 10,00,000 from investors, then its assets will increase by that amount, as will its shareholder’s equity. 

The accounting balance sheet is one of the major financial statements used by accountants and business owners. (The other major financial statements are the income statement, statement of cash flows, and statement of stockholders' equity) The balance sheet is also referred to as the statement of financial position.

The balance sheet presents a company's financial position at the end of a specified date. Some describe the balance sheet as a "snapshot" of the company's financial position at a point (a moment or an instant) in time. For example, the amounts reported on a balance sheet dated December 31, 2017 reflect that instant when all the transactions through December 31 have been recorded. 

Because the balance sheet informs the reader of a company's financial position as of one moment in time, it allows someone—like a creditor—to see what a company owns as well as what it owes to other parties as of the date indicated in the heading. This is valuable information to the banker who wants to determine whether or not a company qualifies for additional credit or loans. Others who would be interested in the balance sheet include current investors, potential investors, company management, suppliers, some customers, competitors, government agencies, and labor unions. 

In Part 1 we will explain the components of the balance sheet and in Part 2 we will present a sample balance sheet. If you are interested in balance sheet analysis, that is included in the Explanation of Financial Ratios. 

We will begin our explanation of the accounting balance sheet with its major components, elements, or major categories: 

* Assets 

* Liabilities 

* Owner's (Stockholders') Equity 

Assets Assets are things that the company owns. They are the resources of the company that have been acquired through transactions, and have future economic value that can be measured and expressed in dollars. Assets also include costs paid in advance that have not yet expired, such as prepaid advertising, prepaid insurance, prepaid legal fees, and prepaid rent. (For a discussion of prepaid expenses go to Explanation of Adjusting Entries.) Examples of asset accounts that are reported on a company's balance sheet include: 

• Cash 
• Petty Cash 
• Temporary Investments 
• Accounts Receivable 
• Inventory 
• Supplies 
• Prepaid Insurance 
• Land 
• Land Improvements 
• Buildings 
• Equipment 
• Goodwill

Usually asset accounts will have debit balances. 

Contra assets are asset accounts with credit balances. (A credit balance in an asset account is contrary—or contra—to an asset account's usual debit balance.) Examples of contra asset accounts include: 

• Allowance for Doubtful Accounts 
• Accumulated Depreciation-Land Improvements 
• Accumulated Depreciation-Buildings 
• Accumulated Depreciation-Equipment 
• Accumulated Depletion Etc.

Classifications Of Assets On The Balance Sheet

Accountants usually prepare classified balance sheets. "Classified" means that the balance sheet accounts are presented in distinct groupings, categories, or classifications. The asset classifications and their order of appearance on the balance sheet are: 

• Current Assets 
• Investments 
• Property, Plant, and Equipment 
• Intangible Assets 
• Other Assets

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