Company Balance Sheet – Revealing the Company’s Assets and Financial Liabilities

A snapshot of a company’s financial position, a balance sheet gives an idea of the assets held by a company and the liabilities it owes. The balance sheet is a barometer of a company’s health and is a useful document to gauge how the company is faring.

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Company Balance Sheet - a Measure of Financial Health

A company balance sheet is a statement that summarizes its financial balances. It lists the company’s assets, liabilities as well as the shareholders’ equity in the company. The company balance sheet details these three components i.e. what the company owns, how much it owes and what is the amount invested by its shareholders. Assets include any property, inventory, cash etc. while liabilities include debts, accounts payable etc. Shareholders’ equity refers to the issued capital or the shares of the company. In a company balance sheet, the assets side must always add up to the liabilities plus shareholders’ equity, which is known as balancing. The balance sheet reflects the company’s position at a specific point in time and is usually presented as a comparison, usually with the same period in the previous year. This helps to determine the company’s performance over a period of time.

Balance Sheet Accounts - the Basic Components

The financial items appearing on the balance sheet are called as balance sheet accounts. Assets can be classified into current and fixed. Current assets are those that can be converted to cash, usually within a year’s time. Cash, inventories and accounts receivable (money owed to the company) are some of the current assets. Fixed assets are long-term assets that cannot be converted to cash easily or quickly. Plant, machinery and property are fixed assets. Liabilities include accounts payable (money owed by the company), provisions, corporate bonds as well as tax liabilities. Shareholders’ equity includes the investment in the company or the share capital as well as the retained earnings or that part of the earnings that the company reinvests in its business. These balance sheet accounts, together, reveal the financial health of a company.

Accounting Balance Sheet Revelations

The accounting balance sheet is one of the important financial statements used by various stakeholders in the company. These include the owners and directors, the accountants, the auditors and the shareholders. The balance sheet is prepared on a quarterly basis and the statement generated at the end of the financial year is included in the company’s annual report. Apart from listing the assets and liabilities, the balance sheet also helps in calculating important financial ratios such as the working capital (which indicates whether the company will be able to meet obligations) and debt to equity ratio (the proportion of assets supplied by shareholders, as against by creditors).