The Balance Sheet is a snapshot in time showing everything the business owns – its assets – and everything a business owes – its liabilities at a specific time.
It reflects the financial status of the organisation at the close of business on a specific day. When reading the balance sheet the date is very important in the interpretation of the financials as the time of the year might impact how good the balance sheet looks for example at the end of a sales promotion.
Balance sheets are usually drawn up at the end of a month or once a year – at the end of a financial year.
The balance sheet is divided into a left and right side. The totals of the left side (Total of Assets) is equal to the total of the right side (Total of Liabilities + Shareholder Funds), hence it being called the balance sheet.
The balance sheet reflects the financial information in three very specific sections namely:
- Assets – what the business owns
- Fixed Assets – also referred to as Long Term Assets
- Current Assets – also referred to as Short Term Assets
- Liabilities – What the business owes
- Fixed Liabilities – also referred to as Long Term Liabilities
- Current Liabilities – also referred to as Short Term Liabilities
- Shareholder’s Funds– the money invested in the business by its shareholders or owners, also referred to Owners Funds or Equity.
In the Book “What the Numbers Mean“, Renier provides a detail overview of the financial records reflected in each of the three sections within the Balance Sheet. He also covers the relation between the Balance Sheet and The Income Statement and concepts like “Goodwill”, “Bad Debt” and stock valuation concepts based on “FIFO” and “LIFO”.
You can obtain a copy of the book “What the Numbers Mean” from LeanPub here…
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