Balance Sheet
While the income statement is a moving picture of a company’s business activities, a balance sheet can be described as a snapshot at a point in time. The balance sheet is made up of a company’s assets, liabilities and stockholder’s equity.
Balance Sheet Equation
Assets = Liabilities + Shareholders Equity
Uses of Capital = Sources of Capital
Sample Balance Sheet
Current assets
Cash 3,053
Short-term investment 3,500
Accounts receivables 1,000
Inventory 2,000 Interest payable 190
Total current assets 9,553
Fixed assets
Total assets $13,153
Current Liabilities
Accounts payables 1,000
Dividend payable 50
Tax payable 781
Total Current Liabilities 2,021
Long-term Liabilities
Equipment 3,600 Bank Loan 3,000
Shareholder’s equity
Paid-in capital 6,000
Retained earnings 2,132
Total Shareholder’s equity 8,132
Total liabilities and equity $13,153
Assets
Assets represent the uses of capital invested in the company. Assets are recorded at their original or historical price and not their current value in the market. The exception to this is marketable securities, which are written down with declines in value (remember the subprime market). Assets can be divided into current and non-current assets. Balance sheet items are listed in order of maturity, with the most current assets listed first.
Current Assets
Current assets are assets that can be converted into cash within one year.
- Examples of current assets include:
- Cash and cash equivalents
- Accounts receivables – Accounts receivables are when a company’s customers promise to pay for goods or services already rendered.
- Inventory – Inventory represents goods held for sale by the company.
- Prepaid assets – Prepaid assets are assets that are paid for in advance. An examples is rent that is paid for in advance.
Non-current Assets
Non-current assets are either unable to be or are not expected to be converted to cash within one year.
Examples of non-current assets include:
- Property, plant & equipment (PP&E)
- Intangible assets – Includes trademarks, patents and goodwill
Liabilities
Liabilities represent what a company owes to lenders and/or suppliers. Along with equity, it represents a source of a company’s capital. Like assets, liabilities can be divided into current and non-current liabilities. Again, balance sheet items are listed in order of maturity, with the most current liabilities listed first.
Current Liabilities
Current liabilities are those with maturities less than one year.
Examples of current liabilities include:
- Accounts payable – Accounts payable arise when a company purchases goods on credit.
- Current portion of long-term debt – Interest and/or principal payments coming due within one year for long-term debt.
Non-current Liabilities
Non-current liabilities are those with maturities greater than one year. Examples of non-current liabilities include long-term debt.
Equity
Equity represents another source of company capital. It can be divided into two components: Contributed and Retained Earnings. Contributed Capital represents funds that the company has received from issuing and repurchasing company shares. Retained Earnings represents cumulative income retained in the company that has not been paid out to shareholders.
Retained Earnings prior year + Net Income – Dividends = Retained Earnings current year