A balance sheet reports the dollar amounts of a company's assets, liabilities, and owner's equity (or stockholders' equity) as of a previous date.
Assets include cash, accounts receivable, inventory, investments, land, buildings, equipment, some intangible assets, and others. Generally assets are reported at their cost or a lower amount due to depreciation, the cost principle, and conservatism. The cost principle also means that some very valuable aspects of the company are not listed as assets. For example, a company's outstanding reputation, its effective management team, and its amazing brand recognition are not reported as assets if they were not acquired in a transaction involving another party or entity.
Liabilities are obligations of a company as of the balance sheet date. These include loans payable, accounts payable, warranty obligations, taxes payable, and more.
The stockholders' equity or owner's equity reports the amount of the assets that came from the owners and not from its creditors.
The balance sheet allows you to easily determine the amount of a company's working capital and whether the company is highly leveraged.
With every balance sheet distributed by a company there should be notes or footnotes. These notes provide important additional information about the company's financial position including potential liabilities not yet appearing as amounts on the balance sheet.
To learn more, see the Related Topics listed below:
After working as an accountant, consultant, and university accounting instructor for more
than 25 years, Harold Averkamp formed AccountingCoach in 2003. His goal was to
share his knowledge and passion for teaching accounting with people throughout the
world at a very low cost. Read More...