Balance Sheet

What is Balance Sheet.?

A Balance Sheet is an important piece of document or statement meant for summarizing a company’s total assets, liabilities as well as equity of shareholders at a given point of time. All three of these elements constitute three distinct segments in the balance sheet for presenting a crystal clear idea to the investors as to what the company owes and owns.

A balance sheet is mandatorily required to follow the following concept or formula:

Assets = Shareholders’ Equity + Liabilities

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The moniker “balance sheet” was decided upon because it balances out both these elements. Let’s put it this way: A company or any other organization must pay for all things it owns (assets) either by borrowing money (liabilities) or getting it from shareholders (shareholders’ equity).

Each of the aforementioned segments of a balance sheet usually has a number of accounts within it for explaining the value of each. Accounts including inventory, cash, property etc. are kept on the asset end of the balance sheet, whereas the liability end contains accounts like long term debt or accounts payable etc.

It is worth noting that the exact accounts on a balance sheet usually differ by industry and by company; primarily because there is no standard magic formula or template to represent the accounts of different types of businesses.

Edited and Updated 13th January 2014

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