https://www.completecontroller.com/wp-content/uploads/cclogo_main-long-300x63.png 0 0 Complete Controller https://www.completecontroller.com/wp-content/uploads/cclogo_main-long-300x63.png Complete Controller2017-06-29 08:50:442017-10-31 17:15:12Balance Sheet- What you need to know
A Balance Sheet, also known as a Statement of Financial Position, is a snapshot of a company’s assets, liabilities, and equity at a single moment in time. In this article we will discuss examples, format, and the categories of a Balance Sheet.A Balance sheet, also known as a Statement of Financial Position, is a “snapshot” of a company’s assets, liabilities, and equity at a single moment in time. Unlike a P&L statement, which compares revenue and costs over a period of time, a balance sheet is recorded for any given day, at any given time. Usually, a Balance sheet is one of 3 statements that companies issue for shareholders or creditors at the end of a financial period. If your company is privately owned, these statements are highly recommended to give you an idea of how well your company is doing and where your equity’s lie on the margin of negative vs. positive. In this article, we will be discussing what a Balance Sheet is, what it covers, and the basic formats that can be used. In order to avoid confusion, we are going to outline the basics of a balance sheet in easy to understand terms and examples for new business owners who may not have expertise in account jargon.
Balance Sheet FormatThere are 2 types of formats that a Balance Sheet follows: account form and report form. The only difference between the two are the use of columns. An account form has two columns: assets on the left, liabilities and equity on the right. A report form is just a single column that starts with assets, followed by liabilities, concluded with equity. Most business owners favor the report form. Like most assignments, the title of your company is listed at the top, followed by “Balance Sheet,” and the date. Assets are always listed first, followed by liabilities, and equity- there is no exception. Within these 3 categories, each has 3 subcategories. Next we will dive into each category and what the subcategories entail.
AssetsAssets are simply items that your company owns that have monetary value. As stated before, Assets and Liabilities have 3 subcategories: current, long-term, and “other.” On your Balance Sheet, Assets should be listed in order of liquidity (how quickly it can become cash in your hand).
Current AssetsCurrent assets are assets than can be turned into cash instantly, or within 30 days. Such things include:
- Bank accounts
- Accounts receivable (money that customers owe you)
Long-term assetsLong-term assets are assets that can be turned into cash, but over a longer period of time. Unlike current assets, which can usually be turned over instantaneously or within a 30 day period. It’s important to note that long-term assets depreciate over time, so beside each long-term asset, a depreciation value is subtracted. Let’s take a car for example. You bought the car brand new, for $10,000. In 2 years, the car’s value goes down to $7,000. Your depreciation is $3,000. Depreciation values are the only negative numbers you’ll find on your asset category of your Balance Sheet. Long-term asset examples are:
- Long-term notes receivable (if you are not getting paid by a customer within 30 days)
- Buildings (most of the time don’t depreciate, they go up in value over time)
- Leasehold improvements
- The amount a business spends to improve a space so that it functions properly for them and their customers, as long as they are leasing the space. Leasehold improvements, also known as tenant improvements, lose value each year of the lease until they are valued at zero on the day the lease expires. You can write them off the lease term as depreciation on your taxes.
LiabilitiesLiabilities are what your company owes, rather than Assets, which show what you own. Liabilities also come in 3 subcategories: current, long-term, and owners debt.
Current LiabilitiesCurrent liabilities, like the previous format, are always listed first. A simple definition of current liabilities is debt or other dues that need to be paid during the current billing period. Examples of current liabilities are as follows:
- Accounts payable
- Bills you need to pay
- Accrued liabilities
- These are expenses your company accounts for ahead of time, such as payroll, taxes, and interest
- Lines of Credit
- What you owe on your credit cards.
- These can be short-term loans or payments on long-term loans that are due within the next 30 days.
Long-term LiabilitiesLong-term liabilities are accounts payable that aren’t due to be paid in full within the next 12 month period. Depending on the size of your company, Long-term liabilities may be summarized in one category or expanded into subcategories. Long-term liabilities may also be referred to as long-term debt or non current liabilities. Examples of long-term liabilities include:
- Pension/Health care obligations
- Long-term loans
- Equipment loans, auto loans, etc.
- Long-term leases that cannot be terminated
- Bonds payable