Balance Sheet Format

• Introduction to Balance Sheet Format
• Balance Sheet Format of a company
• Explanation of Balance Sheet Components

Introduction to Balance Sheet Format

Balance Sheet format includes assets on one side and liabilities on the other. For balance sheet to reflect the true picture, both sides should tally. For us to understand the balance sheet format, we must know the components which forms part of it.

Balance sheet format of a company

Below is the balance sheet format with an example

As illustrated above, on the left side of the balance sheet format, all the Liabilities are shown followed with each sub-components of assets. On the right side of the balance sheet format, assets followed with sub-components are displayed.

Explanation of Balance Sheet Components

Assets

Individuals own assets of great value such as real estate or jewellery. Similarly, companies can own assets as well. One of the major differences between an individual and a business’s assets is the company’s obligation to publish what it owns to the public. Businesses can own tangible assets such as computers, machinery, money and real estate. It can also have intangible assets such as trademarks, copyrights or patents. Usually, a company’s assets are categorized according to the ability to convert it into cash in two types:

• Current Assets

Cash held by the company and other properties which could be easily converted into cash in one year. It is an indicator of the company’s financial status because it is used to cover short term obligations of the company’s operations. If the company suffers from a decline in its current assets, it implies that it needs to find new means to finance its activities. One way is to issue shares. Generally, we can say that increase in company’s current net asset indicates the increase in the company’s opportunities in maintaining its growth.

Some of the important current assets for companies:

• • • Cash and its equivalents.
    • Short term investments.
    • Bills Receivables
    • Inventory

• Non-current Assets

Non-current Assets are those assets that the company owns and needs more than a year to convert into cash. It can be also be the those assets that the company does not have any future commitment to convert it to cash during the next year. Fixed assets such as lands, buildings, machinery and so on, come under non-current assets. The importance of the volume of these assets is based on its sector’s type.

Liabilities

All companies,even those profitable, have debts. In the balance sheet, debts are called liabilities. The success of companies’ management is based on its ability to manage its various liabilities which are considered a part of its business.

Examples of a company’s liabilities: -

• Bills payables
• Shareholders’ Equity
• Outstanding Expenses.
• Long term loans.

Liabilities in the balance sheet are divided into two parts:

• Current Liabilities

Current liabilities are those commitments which the company should pay in no more than one year. Usually, the company tends to liquidate some of its current assets to cover these expenses.

Here are few examples of the current liabilities: -

• • • Bills Payables.
    • Undistributed dividends

• Long-term Liabilities

Long-term liabilities are those commitments which the company is not restricted to pay within at least one year such as Long- term loans. Although these debts are not to be paid through the next financial year, but in the end, they should be paid. It is important to keep that in mind when evaluating the company.

Shareholders’ Equity

Equity holders’ stake is mentioned in the company’s balance sheet report. Equity shareholders fund equals the invested money that was distributed as shares plus the undistributed profits, which represents retained earnings held and re-invested by the company. They are not distributed to shareholders. To make it simple, shareholders’ equity finances the company’s business. The size of the company’s own operational money increases in proportionate with the shareholders' equity stake.

The equity is calculated in a balance sheet by subtracting total liabilities from total assets. For example, if the company’s total assets are 100 million while its liabilities are 75 million, then the shareholders’ equity equals 25 million. The formula is to calculate Shareholders equity is below:

Shareholders’ Equity = Total Assets – Total Liabilities (100 million – 75 million = 25 million)

Watch this Video on How to View and Analyse Balance Sheet in TallyPrime

Read More on Balance Sheet

What is Balance Sheet, How to Prepare Balance Sheet, Components of Balance Sheet, Consolidated Balance Sheet, Common Size Balance Sheet