Balance Sheet Sample For Service Business – If in doubt about a company’s financial health, start by looking at the latest version of the balance sheet (or statement of financial condition). The balance sheet is the “go-to” source for understanding a company’s debt position, financial structure, capitalization, use of leverage, asset structure, dividend history, and more.
The Balance Sheet (B/S) is one of 4 basic financial statements that public companies must publish quarterly and annually.
Balance Sheet Sample For Service Business
The B/S structure for maintaining account balances divides company accounts into three categories: (1) equity (which it owns outright), (2) liabilities (which it owes), and (3) assets it owns and uses to operate and profit. The balance sheet structure represents accounts and account amounts in the so-called accounting equation or balance sheet equation:
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By comparing specific balance sheet amounts, analysts paint a company’s financial health and financial structure map—a snapshot of a company’s financial strengths and weaknesses at a point in time.
The other three mandatory statements are the income statement, statement of retained earnings, and statement of changes in financial position. Note that some companies and most government agencies publish their balance sheets under another proper name for the balance sheet, the “statement of financial position.”
Accountants prepare balance sheet reports at the end of the accounting cycle. Over the entire period, total balance sheet assets equal total liabilities and equity. Financial performance and financial position may be strong or weak, but the balance sheet is always balanced. [Photo: Employees of the Norfolk & Western Railroad, Roanoke, Virginia, 1925]
Accountants prepare balance sheet reports at the end of the accounting cycle. Total balance sheet assets equal the sum of liabilities and equity over the period. Financial performance and financial position may be strong or weak, but the balance sheet is always balanced. [Photo: Employees of the Norfolk & Western Railroad, Roanoke, Virginia, 1925]
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In principle, a company could publish a new and different balance sheet every day. In fact, they usually only do this at the end of the fiscal quarter and fiscal year. The B/S header indicates the date with the phrase: “…on December 31, 2019.”
Thus, a balance sheet is a snapshot of a company’s financial position at a certain point in time. Therefore, B/S differs from other reports, which report activity for a specific period.
In the company’s Assets, Liabilities, and Owner’s Equity accounts. However, there is another reason why it bears “balance” in its name. Three main B/S departments represent the accounting equation:
The term balance is used because the sum of a company’s assets must equal (balance) the sum of its liabilities and owners’ equity. This balance always includes whether the company’s financial situation is excellent or poor. The double-entry principle in accrual accounting means that every change in an amount on one side brings about an equal, offsetting change on the other side.
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Analysts evaluate a company’s financial health by comparing the numbers on the sheet rather than total assets or its balanced counterpart.
The following sections further define and explain balance sheets using relevant terms and concepts, focusing on five themes:
The balance sheet primarily reports the period-end balances of the company’s assets, liabilities, and owners’ equity accounts. Balance sheet organization information to represent a detailed version of the accounting equation:
The level of detail of the published B/S depends on the intended and intended audience using the balance sheet information.
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The annual report version of the balance sheet generally contains less detail than Annex 1, but more detail than Annex 2.
Exhibit 1. The simple example balance sheet above shows the basic structure and important categories under Assets, Liabilities, and Owner’s Equity.
The entire table sometimes appears in a horizontal layout, with the Assets page on the left and the Liabilities and Equity page on the right. This layout explains why people refer to the “sides” of the balance sheet. Alternatively, B/S occurs in a vertical arrangement, as shown in Exhibits 1 and 2. In this case, people still refer to the “asset side” or “liabilities and equity side” of the table.
Companies typically publish their balance sheets after each fiscal quarter and fiscal year end. Note that organizations often publish different B/S versions, with different levels of detail.
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For shareholders and the public, the company’s annual report is the most accessible version for shareholders. Public companies publish this report and send it to shareholders before the annual meeting to elect directors. Shareholders typically receive printed reports by mail, but these reports are publicly available on the company’s website. Annual reports and financial statements are usually located under website headings such as “Investor Relations” or “Investor Services.”
For annual reports, companies are legally obliged to publish balance sheets and other statements that serve two purposes:
Organizations also publish financial statements that serve different audiences and other purposes. To learn more about the audience and purpose of a balance sheet, see the materiality concept article.
The structure and math of an income statement is easily understood by most business people. However, many people find it difficult to understand balance sheets.
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Even those familiar with accounting systems will notice that many balance sheet line items are also account names in an organization’s chart of accounts. These are accounts in the categories of Assets, Liabilities and Equity.
Both the income statement and the balance sheet start with simple equations. The basic income statement equation is:
With regard to balance sheets and double-entry bookkeeping, some entrepreneurs must also include this part of the above accounting equation:
In double-entry accounting, each financial event must affect at least two accounts. Each effect is either a “debit” or a “credit”, depending on the class of account involved. The double-entry bookkeeping system ensures that the balance sheet is always in balance.
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Suppose a company acquires an asset for $1,000. The asset account (probably under current assets) increases by $1,000. For example, such an increase may occur in a “stock account”. Since the inventory account is an asset account, the increase comes from the “debit” or “DR”.
Therefore, total balance sheet assets are always equal to total liabilities and equity. Also, total debits are always equal to total credits.
Exhibit 2 below shows the same balance sheet as Exhibit 1, but in greater detail. The definitions of the main categories and line items are shown below the examples.
In principle, these assets can be converted into cash in the short term. “Recent” usually means a year or less. Current assets include cash on hand, but also include short-term investments, accounts receivable, inventories, and prepaid expenses.
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These assets are not going to be turned into cash anytime soon. These may include stocks and bonds of other companies or other long-term investments.
These are important physical assets of a company, such as buildings, factory machinery, vehicles, and computer systems. Companies typically deduct the cost of these assets from revenue as a depreciation expense over the asset’s useful life. Note that depreciation expense is added to Accumulated Depreciation for each year of the asset’s depreciable life. As a result, the “book value” of total assets decreases.
The intangible donkey contrasts with material possessions. Intangible assets cannot be seen or touched, but they are still assets because:
These are liabilities that the company must pay off in the near term (a year or less). May include accounts payable, outstanding portion of long-term debt and short-term warranty obligations.
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These are liabilities payable for more than one year. Long-term liabilities may include bank bills, bonds or long-term financing arrangements for purchases.
Contributions are one of two categories under owner’s equity (the other being “retained earnings”). A capital contribution is an investment made by shareholders by purchasing shares directly from a company. Paid-in capital consists of two main components: authorized capital, which represents the stated or par value of the shares, and additional paid-in capital. The payment to the company is more than face value.
After a successful period, the company can (at the discretion of its board of directors) pay a portion of its income to shareholders as dividends and keep the rest as retained earnings. A company’s accumulated retained earnings appear on its balance sheet under owners’ equity.
Balance sheets are the primary data source for financial indicators and financial statement ratios. Financial statement measures are generally grouped into six series. Members at each address asked the following questions:
Balance Sheet Example
To learn more about each metric in the six metric families shown above, click the link for each metric family name.
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A company’s balance sheet defines three structures that determine how the company uses assets, liabilities, and equity to generate revenue and profits. Exhibit 2 below shows how these structures represent groups of balance sheet items. The red, green and blue borders in Exhibit 3 show the balance sheet categories that make up each structure:
Exhibit 3. The components of a balance sheet collectively define a company’s asset structure, financial structure, and capital structure (capitalization).
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For traders, understanding the properties of each structure is mostly about comparing the relative sizes of the objects in the structure.
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