What is a Balance Sheet?
A balance sheet is one of the most important financial statements. We prepare balance sheet typically on a quarterly or yearly basis. It depends on the frequency of reporting according to the Indian Accounting Standard (abbreviated as Ind-AS).
In general balance sheet has two sides which is balanced at any point of time. One is Asset side (things business own) and other side compromises of liability (things business owe to outsiders) and owner’s equity (the residuals). The formula can be written as
Asset = Liabilities + Owner's Equity
- Asset
An asset is anything a company owns which holds some amount of quantifiable value. They are the goods and resources owned by the company.
Assets can be further broken down into current assets and noncurrent assets.
Current assets are typically such item which can be converted or expected to be converted into cash within a year’s time, such as cash and cash equivalents, prepaid expenses, inventory, marketable securities, and accounts receivable.
Noncurrent assets are long-term investments that a company does not expect to convert into cash within a year’s time, such as land, Plant Property and Equipment (PP&E), patents, trademarks, and intellectual property. - Liabilities
A liability is anything a company or business owes to an outsider. This may include salary and wage expenses, rent and utility payments, loan payments, money owed to suppliers, taxes, or bonds payable.
As with assets, liabilities can be classified as either current liabilities or noncurrent liabilities.
Current liabilities are typically those due within one year, which may include accounts payable and other accrued expenses, salary, wages, utility payments.
Noncurrent liabilities are typically those that a company doesn’t expect to repay within one year. They are usually long-term obligations, such as leases, bonds payable, or loans.
The Common Sense: We started learning the management from the balance sheet. Life is all about balances in each aspect. Sometimes you have to balance your job with personal life. Sometimes credit card and salary.
Task: Find some interesting balances (be as much creative you can be) and shoot mail to ajit@learnmba.in
