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, AccountingCoach.com
Balance Sheet
All underlined words are defined in the attached Glossary (Pages 12 – 24).
Introduction to Balance Sheet
The accounting balance sheet is one of the major financial statements used by
accountants and business owners. (The other major financial statements are the
income statement, statement of cash flows, and statement of stockholders' equity) The
balance sheet is also referred to as the statement of financial position.
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The balance sheet presents a company's financial position at the end of a specified date.
Some describe the balance sheet as a "snapshot" of the company's financial position at
a point (a moment or an instant) in time. For example, the amounts reported on a
balance sheet dated December 31, 2007 reflect that instant when all the transactions
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through December 31 have been recorded.
Because the balance sheet informs the reader of a company's financial position as of
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one moment in time, it allows someone—like a creditor—to see what a company owns
as well as what it owes to other parties as of the date indicated in the heading. This is
valuable information to the banker who wants to determine whether or not a company
qualifies for additional credit or loans. Others who would be interested in the balance
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sheet include current investors, potential investors, company management, suppliers,
some customers, competitors, government agencies, and labor unions.
In Part 1 we will explain the components of the balance sheet and in Part 2 we will
present a sample balance sheet. If you are interested in balance sheet analysis, that is
included in the Explanation of Financial Ratios.
We will begin our explanation of the accounting balance sheet with its major
components, elements, or major categories:
Assets
Liabilities
Owner's (Stockholders') Equity
For personal use by the original purchaser only. Copyright © 2009 AccountingCoach.com. 1
, Assets
Assets are things that the company owns. They are the resources of the company that
have been acquired through transactions, and have future economic value that can be
measured and expressed in dollars. Assets also include costs paid in advance that have
not yet expired, such as prepaid advertising, prepaid insurance, prepaid legal fees, and
prepaid rent. (For a discussion of prepaid expenses go to Explanation of Adjusting
Entries.)
Examples of asset accounts that are reported on a company's balance sheet include:
Cash
Petty Cash
Temporary Investments
Accounts Receivable
Inventory
Supplies
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Prepaid Insurance
Land
Land Improvements
Buildings
Equipment
Goodwill
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Bond Issue Costs
Etc.
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Usually these asset accounts will have debit balances.
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Contra assets are asset accounts with credit balances. (A credit balance in an asset
account is contrary—or contra—to an asset account's usual debit balance.) Examples of
contra asset accounts include:
Allowance for Doubtful Accounts
Accumulated Depreciation-Land Improvements
Accumulated Depreciation-Buildings
Accumulated Depreciation-Equipment
Accumulated Depletion
Etc.
For personal use by the original purchaser only. Copyright © 2009 AccountingCoach.com. 2
VI
U
ST
, AccountingCoach.com
Balance Sheet
All underlined words are defined in the attached Glossary (Pages 12 – 24).
Introduction to Balance Sheet
The accounting balance sheet is one of the major financial statements used by
accountants and business owners. (The other major financial statements are the
income statement, statement of cash flows, and statement of stockholders' equity) The
balance sheet is also referred to as the statement of financial position.
ST
The balance sheet presents a company's financial position at the end of a specified date.
Some describe the balance sheet as a "snapshot" of the company's financial position at
a point (a moment or an instant) in time. For example, the amounts reported on a
balance sheet dated December 31, 2007 reflect that instant when all the transactions
U
through December 31 have been recorded.
Because the balance sheet informs the reader of a company's financial position as of
VI
one moment in time, it allows someone—like a creditor—to see what a company owns
as well as what it owes to other parties as of the date indicated in the heading. This is
valuable information to the banker who wants to determine whether or not a company
qualifies for additional credit or loans. Others who would be interested in the balance
A
sheet include current investors, potential investors, company management, suppliers,
some customers, competitors, government agencies, and labor unions.
In Part 1 we will explain the components of the balance sheet and in Part 2 we will
present a sample balance sheet. If you are interested in balance sheet analysis, that is
included in the Explanation of Financial Ratios.
We will begin our explanation of the accounting balance sheet with its major
components, elements, or major categories:
Assets
Liabilities
Owner's (Stockholders') Equity
For personal use by the original purchaser only. Copyright © 2009 AccountingCoach.com. 1
, Assets
Assets are things that the company owns. They are the resources of the company that
have been acquired through transactions, and have future economic value that can be
measured and expressed in dollars. Assets also include costs paid in advance that have
not yet expired, such as prepaid advertising, prepaid insurance, prepaid legal fees, and
prepaid rent. (For a discussion of prepaid expenses go to Explanation of Adjusting
Entries.)
Examples of asset accounts that are reported on a company's balance sheet include:
Cash
Petty Cash
Temporary Investments
Accounts Receivable
Inventory
Supplies
ST
Prepaid Insurance
Land
Land Improvements
Buildings
Equipment
Goodwill
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Bond Issue Costs
Etc.
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Usually these asset accounts will have debit balances.
A
Contra assets are asset accounts with credit balances. (A credit balance in an asset
account is contrary—or contra—to an asset account's usual debit balance.) Examples of
contra asset accounts include:
Allowance for Doubtful Accounts
Accumulated Depreciation-Land Improvements
Accumulated Depreciation-Buildings
Accumulated Depreciation-Equipment
Accumulated Depletion
Etc.
For personal use by the original purchaser only. Copyright © 2009 AccountingCoach.com. 2
