Balance Sheet Overview - AccountingTools

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The Balance Sheet

A balance sheet (also known as a statement of financial position), presents information about an entity's assets, liabilities, and shareholders' equity, where the compiled result must match this formula:

Total assets = Total liabilities + Equity

The balance sheet reports the aggregate effect of transactions as of a specific date. The balance sheet is used to assess an entity's liquidity and ability to pay its debts.

There is no specific requirement for the line items to be included in the balance sheet. The following line items, at a minimum, are normally included in the balance sheet:

Current Assets:

Cash and cash equivalents
Trade and other receivables
Investments
Inventories
Assets held for sale

Non-Current Assets:

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:

Here is an example of a balance sheet:

Holystone Dental Corp.
Statement of Financial Position

(000s)	as of 12/31/x2	as of 12/31/x1
ASSETS
Current assets
Cash and cash equivalents	$270,000	$215,000
Trade receivables	147,000	139,000
Inventories	139,000	128,000
Other current assets	15,000	27,000
Total current assets	571,000	509,000

Non-current assets
Property, plant, and equipment	551,000	529,000
Goodwill	82,000	82,000
Other intangible assets	143,000	143,000
Total non-current assets	776,000	754,000

Total assets	$1,347,000	$1,263,000

LIABILITIES AND EQUITY
Current liabilities
Trade and other payables	$217,000	$198,000
Short-term borrowings	133,000	202,000
Current portion of long-term borrowings	5,000	5,000
Current tax payable	26,000	23,000
Accrued expenses	9,000	13,000
Total current liabilities	390,000	441,000

Non-current liabilities
Long-term debt	85,000	65,000
Deferred taxes	19,000	17,000
Total non-current liabilities	104,000	82,000

Total liabilities	494,000	523,000

Shareholders’ Equity
Capital	$100,000	$100,000
Additional paid-in capital	15,000	15,000
Retained earnings	738,000	625,000
Total equity	853,000	740,000

Total liabilities and equity	$1,347,000	$1,263,000

You should classify all of the following as current assets:

Cash. Cash that is available for current operations, and any short-term, highly liquid investments that are readily convertible to known amounts of cash and which are so near their maturities that they present an insignificant risk of value changes. Do not include cash whose withdrawal is restricted, to be used for other than current operations, or segregated for the liquidation of long-term debts.
Inventory. Includes merchandise, raw materials, work in process, finished goods, operating supplies, and maintenance parts.
Accounts receivable. Includes trade accounts, notes, and acceptances that are receivable. Also, include receivables from officers, employees, affiliates, and others, if they are collectible within a year. Do not include any receivable that you do not expect to collect within 12 months.
Marketable securities. Includes those securities representing the investment of cash available for current operations, including trading securities.
Prepaid expenses. Includes prepayments for insurance, interest, rent, taxes, unused royalties, advertising services, and operating supplies.

You should classify an asset as current when an entity expects to sell or consume it during its normal operating cycle or within 12 months after the reporting period. If the operating cycle is longer than twelve months, then use the longer period to judge whether an asset can be classified as current. You should classify all other assets as non-current.

You should classify all of the following as current liabilities:

Payables. All accounts payable incurred in the acquisition of materials and supplies that are used to produce goods or services.
Prepayments. Amounts collected in advance of the delivery of goods or services by the entity to the customer. Do not include a long-term prepayment in this category.
Accruals. Accrued expenses for items directly related to the operating cycle, such as the accruals for compensation, rentals, royalties, and various taxes.
Short-term debts. Debts maturing within the next 12 months.

You should classify a liability as current when the entity expects to settle it during its normal operating cycle or within twelve months after the reporting period, or if it is scheduled for settlement within twelve months. You should classify all other liabilities as non-current.

Current liabilities include accruals for amounts that can only determined approximately, such as bonuses, and where the payee to whom payment will be made cannot initially be designated, such as a warranty accrual.