The Balance Sheet
A balance sheet lays out the ending balances in a company's asset, liability, and equity accounts as of the date stated on the report. The most common use of the balance sheet is as the basis for ratio analysis, to determine the liquidity of a business. Liquidity is essentially the ability to pay one's debts in a timely manner. The information listed on the report must match the following formula:
Total assets = Total liabilities + Equity
The balance sheet is one of the key elements in the financial statements, of which the other documents are the income statement and the statement of cash flows. A statement of retained earnings may sometimes be attached.
The format of the balance sheet is not mandated by accounting standards, but rather by customary usage. The two most common formats are the vertical balance sheet (where all line items are presented down the left side of the page) and the horizontal balance sheet (where asset line items are listed down the first column and liabilities and equity line items are listed in a later column). The vertical format is easier to use when information is being presented for multiple periods.
The line items to be included in the balance sheet are up to the issuing entity, though common practice typically includes some or all of the following items:
Current Assets:
Cash and cash equivalents
Cash and cash equivalents
Trade and other receivables
Investments
Inventories
Assets held for sale
Non-Current Assets:
Property, plant, and equipment
Intangible assets
Goodwill
Current Liabilities:
Trade and other payables
Accrued expenses
Current tax liabilities
Current portion of loans payable
Other financial liabilities
Liabilities held for sale
Non-Current Liabilities:
Loans payable
Deferred tax liabilities
Other non-current liabilities
Equity:
Capital stock
Additional paid-in capital
Retained earnings
Here is an example of a balance sheet:
