Balance Sheet Definition – Entrepreneur SMALL COMPANY Encyclopedia

Definition: A financial record that lists the assets, liabilities and equity of a company at a particular time and can be used to calculate the web worth of a business. A simple tenet of double-entry book-keeping is that total assets (just what a business owns) must equal liabilities plus equity (the way the assets are financed). Basically, the total amount sheet must balance. Subtracting liabilities from assets shows the web worth of the business enterprise A simple tenet of double-entry bookkeeping is that total assets (just what a business owns) must equal liabilities plus equity (the way the assets are financed).

The top part of the total amount sheet should list your company’s assets to be able of liquidity, from most liquid to least liquid. Current assets are cash or its equivalent or those assets which will be used by the business enterprise in a year or less. They are the following:

  • Cash may be the cash on hand at that time books are closed towards the end of the fiscal year. This identifies all profit checking, savings and short-term investment accounts.
  • Accounts receivable may be the income produced from credit accounts. For the total amount sheet, it is the total amount of income to be received that’s logged in to the books at the close of the fiscal year.
  • Inventory comes from the price of goods table. It is the inventory of material used to manufacture something not yet sold.

"Total current assets" may be the sum of cash, accounts receivable, inventory and supplies.

Other assets that come in the total amount sheet are called long-term or fixed assets because they’re durable and can last several year. Types of long-term assets are the following.

  • Capital and plant may be the book value of most capital equipment and property (in the event that you own the land and building), less depreciation.
  • Investment includes all investments owned by the business that can’t be changed into cash in significantly less than one year. Generally, companies just getting started have not accumulated long-term investments.
  • Miscellaneous assets are other long-term assets that aren’t "capital and plant" or "investment."

"Total long-term assets" may be the sum of capital and plant, investments, and miscellaneous assets. "Total assets" may be the sum of total current assets and total long-term assets

After listing the assets, afterward you have to take into account the liabilities of your business. Like assets, liabilities are classified as current or long term. Debts that are due in a single year or less are classified as current liabilities. If they are due in several year, they’re long-term liabilities. Listed below are types of current liabilities:

  • Accounts payable include all expenses incurred by the business enterprise that are ordered from regular creditors on an open account and so are due and payable.
  • Accrued liabilities are expenses incurred by the business enterprise that are necessary for operation but have not yet been paid at that time the books are closed. These expenses are often the business’s overhead and salaries.
  • Taxes are those payments still due and payable at that time the books are closed.

"Total current liabilities" may be the sum of accounts payable, accrued liabilities and taxes.

Long-term liabilities are the following:

  • Bonds payable may be the total of most bonds towards the end of the entire year that are due and payable over an interval exceeding twelve months.
  • Mortgage payable is loans applied for for the purchase of property that are repaid over a long-term period. The mortgage payable is that amount still due at the close of the fiscal year.
  • Notes payable will be the amounts still owed on any long-term debts that wont be repaid through the current fiscal year.

"Total long-term liabilities" may be the sum of bonds payable, mortgages payable and notes payable. "Total liabilities" may be the sum of total current and long-term liabilities.

After the liabilities have already been listed, the owner’s equity may then be calculated. The total amount related to owner’s equity may be the difference between total assets and total liabilities. The volume of equity the dog owner has available can be an important yardstick utilized by investors to evaluate the business. Often, it determines the number of capital they feel they are able to safely invest in the business enterprise.

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