Balance Sheet Basics

Balance Sheet

Balance sheet reports the financial condition of the company at a specific point in time. Financial condition is the status of a company’s assets, liabilities, and equity.

Assets are the properties owned by the company while the liabilities are the debt or claims against the company. The difference between assets and liabilities is called equity. Assets are always equal in total value with liabilities and equity:

Assets = Liabilities + Equity

Believe it or not, you can make a balance sheet of your own financial condition right now. Let’s have Juan as an example. Juan reached into his pocket and found 150 pesos.

Cash P150

Included in the P150 cash is the P50 his mother gave him for his allowance so that would be his liability.

Liability P50

The difference between Assets and Liabilities is Equity.

Equity P100

JUAN’S BALANCE SHEET

ASSETS

Cash P150

LIABILITIES

Payable to mommy P50

EQUITY

Equity P100

Notice the characteristics mentioned?
1. Contains financial condition (status of assets, liabilities, and equity)
2. At a specific point in time (you can prepare balance sheet anytime)
3. Assets are always equal in total value with liabilities and equity

Advertisements

One thought on “Balance Sheet Basics

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s