Key Components of Balance Sheet

Hello Everyone,   

        

I have set the target to share some knowledge on financial statements. 

Starting with one of the major financial statements, balance sheet. The plan is to cover balance sheet in the first phase and then we will move on to the next financial statement and so on.

The first milestone of balance sheet illustration phase is, sharing some pieces of information on the key components. To start with, let’s have a look at a sample balance sheet.

 

 Now let’s agree on what a balance sheet is.

In the simplest words, “it is a summary or a snapshot of the financial balances of any business at a point in time”

In formal words, “The Balance Sheet sums up the economic resources (assets), obligations (debts and other long-term liabilities) and the owners’ Capital at a particular point of time. It also shows how the economic resources contributed by lenders and shareholders are used in the business. This statement is called a “balance sheet” because at any given time, Assets must equal Liabilities plus Capital, in other words, be in balance.”

So we can safely conclude the key components of a balance sheet as

• Assets
• Liabilities &
• Equities
  

Let’s proceed with Assets,

We can define assets as the resources owned by a business which benefit its future operations and are convertible to cash (cash itself is also an asset).

We can classify these resources as

• Current Assets (Cash and other resources that are expected to turn to cash or to be used up within one year of the balance sheet date
• Investments (the monetary assets purchased with the idea that the asset will provide income in the future or appreciate and be sold at a higher price)
• Property, Plant & Equipment / Tangible Fixed Assets (assets of a long lasting nature, which are used in the normal operation of the company)
• Intangible Assets (assets that are not physical in nature. Corporate intellectual property (items such as patents, trademarks, copyrights, business methodologies), goodwill and brand recognition are all common intangible assets in today's marketplace 

Next component here is Liabilities

We can define liability as obligations of an entity arising from past transactions or events, the settlement of which may result in the transfer or use of assets, provision of services or other yielding of economic benefits in the future.

And we can classify these obligations as

• Current Liabilities (A company's debts or obligations that are due within one year)
• Long Term Liabilities (the one the company expects to pay over the course of more than one year)

And then comes the last component of balance sheet which is Stockholder’s equity

In simple words, “Equity is the owner's value in an asset or group of assets.”

Equity represents the interest of a company's stockholders in the net assets of the company. According to the accounting equation:

Equity = Assets − Liabilities

This equation is the theme of whole balance sheet, called basic accounting equation and also sometimes called the balance sheet equation.

Feel free to contact me for any confusion on this.

Stay good :)


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And in the end there is a message to me that I am not accepting so far

I’m sorry for all misdeeds
This is wrong because it has affected rather ruined you badly
In the future, I will be careful not doing like thi
Will you forgive please me? :(