Balance Sheet – Meaning and Example

What is a Balance Sheet?

In the previous article, we have gone through how to prepare an Income Statement. The Balance Sheet is simply a list of accounts that fall in the Asset, Shareholders’ Equity and Liabilities categories with their balances. This is in contrast to the Income Statement which is essentially an account on its own. You can also find more about the differences between the Income Statement and Balance Sheet.

Note that you have to prepare the Income Statement first and update the retained earnings account before proceeding to prepare the Balance Sheet.

[Company Name]

Balance Sheet as at 31 December 2015

ASSETS

 

 

 

Non-current assets

$

$

 

Land and Property

58,000

 

 

Plant and Machinery

3,000

 

 

Motor Vehicles

8,000

69,000

 

 

 

 

 

Current assets

 

 

 

Inventory

 

 

 

Accounts Receivable

 

 

 

Cash

 

33,000

TOTAL ASSETS

 

102,000

 

 

 

 

SHAREHOLDERS’ EQUITY

$

$

 

Paid-in Capital

 

75,000

 

Retained Earnings

 

7,000

TOTAL SHAREHOLDERS’ EQUITY

 

82,000

 

 

 

 

LIABILITIES

 

 

 

Current Liabilities

 

 

 

Bank Overdraft

500

 

 

Accounts Payable

6,500

 

 

Provisions

1,000

8,000

 

 

 

 

 

Non-current Liabilities

 

 

 

Loan from Bank

 

12,000

TOTAL LIABILITIES

 

22,000

 

 

 

 

TOTAL SHAREHOLDERS’ EQUITY AND LIABILITIES

 

102,000

The Balance Sheet above resembles the accounting equation. It shows the assets at the top and shareholders’ equity and liabilities at the bottom. Both halves sum up to be $102,000. It reflects the accounting equation of “Assets = Shareholders’ Equity + Liabilities”. Some Balance Sheets may place the Current Liabilities section right below the Current Assets section. These Balance Sheets present the accounting equation as “Assets – Current Liabilities = Shareholders’ Equity + non-current Liabilities”. While this helps users of the Balance Sheet carry out financial statement analysis in a more convenient manner, the underlying concept is still the same.

Note that this is only a simple version of the Balance Sheet. We have not taken into account some of the year-end adjustments that will affect the Income Statement and Balance Sheet. The next article in this series talk about depreciation, an important year-end adjustment.

 

References

Horngren, C., Sundem, G., Elliott, J., & Philbrick, D. (2014). Accounting: The Language of Business. In Introduction to Financial Accounting (Eleventh ed.)

 

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