The balance sheet explained

A Balance Sheet lists a company’s assets, liabilities, and owners” equity at a given point in time.  It follows the accounting equation and will help you understand a company’s solvency and liquidity.

Assets = Liabilities + Owners’ Equity.

The Balance Sheet is sometimes called the Statement of Financial Position.  The name “balance sheet” comes from the fact that a balance sheet must balance, just like the accounting equation: Assets must equal liabilities plus owners” equity.

Balance Sheets typically follow either a left-and-right format or a top-and-bottom format.  The left-and-right format presents assets on the left, and liabilities and owners’ equity on the right.  The top-and-bottom format presents assets on top, and liabilities and owners’ equity on bottom.

A company prepares and releases its balance sheet annually, on the last day of its fiscal year (usually December 31).  Many companies also prepare balance sheets quarterly (every three months) or even monthly.

If you run your own business, you should have some idea of what your balance sheet looks like.  What assets do you have and how much are they worth?  How much cash do you have on hand?  How much inventory?  What liabilities do you have, and how much do you owe?  How much do you owe suppliers?  The bank?  And  how much equity do you have in your business?

Here is Walt Disney Company’s Annual Report.  You’ll find the balance sheet on Page 62.

If you have any questions about the balance sheet, you can leave them in the comment space below.

About Mark P. Holtzman

Chair of Accounting Department at Seton Hall University. PhD from The University of Texas at Austin. Worked at Deloitte's New York Office. BSBA from Hofstra University.

6 Responses to “The balance sheet explained”

  1. very interesting. i got the full idea of how to do a balance sheet. Thank you

Trackbacks/Pingbacks

  1. Accounting Made Easy by the Accountinator « Homepreneurs's Blog - April 2, 2012

    […] payable.  If a few accounting classes were taken, one might understand the difference between a balance sheet and a trial balance report or be able to define and describe E.B.I.T.A and G.A.A.P.  Lost yet?  I […]

  2. Assets vs. Expenses « Accountinator - May 4, 2012

    […] Assets provide a future benefit to your business.  They help bring in future revenues and profits.  Assets appear on the balance sheet. […]

  3. Why you need to know accounting: Tools for businesses « Accountinator - June 20, 2012

    […] you are going to do business, you need to understand what a balance sheet is. What an income statement is. How profits are calculated. What assets are. How taxes are […]

  4. Do you understand the language of accounting - June 27, 2012

    […] you are going to do business, you need to understand what a balance sheet is. What an income statement is. How profits are calculated. What assets are. How taxes are […]

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: