Scribd
Upload
22 views4 pages

Elements of A Balance Sheet - Docx FINAL

Elements of Balance Sheet or SFP

Uploaded by

PHEGIEL HONCULADA MAGAMAY
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
22 views4 pages

Elements of A Balance Sheet - Docx FINAL

Elements of Balance Sheet or SFP

Uploaded by

PHEGIEL HONCULADA MAGAMAY
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
You are on page 1/ 4

Elements of a

Balance Sheet
by Neil Kokemuller
(http://smallbusiness.chron.com/elements-balance-sheet-
55903.html)

The balance sheet is one of the main financial reports


prepared by company accountants. It offers one of the
best overall views of your business's financial situation.
The three major elements of the balance sheet are
assets, liabilities and owners' equity. The statement
shows assets on the left and liabilities and equity on the
right and it follows the basic equation "assets equal
liabilities plus owners' equity."

Overall Use
Your balance sheets show the position of the company
on a given day, including its total assets, liabilities and
equity, which equals its net worth. Lenders commonly
use financial statements to assess your company's
creditworthiness. A high debt-to-assets or debt-to-
equity ratio is a concern. As managers, you can use the
statement to make decisions about what to do with
assets, how to manage finances and whether to
distribute any earnings to shareholders. Suppliers and
possible investors are also potentially interested in the
balance sheet information.

Assets
The assets section shows items your company
owns that have tangible value. It includes
current assets, along with property and
equipment, investments and intangible
assets. The current assets section is
compared to current liabilities to figure out
your basic liquidity, or ability to pay off short-
term debt. Current assets include cash,
securities and accounts receivable, which can
all generally be converted to cash within 12
months. Property and equipment are assets
with a longer-term use that would generally
take longer to sell. Longer-term assets are
more often used to operate your business.
Liabilities
The liabilities section is simply divided into
current and long-term liabilities. Current
liabilities are debts due within the next 12
months. Notes payable and accounts payable
are common short-term debt accounts. High
near-term debt obligations stifle growth and
may put you in a financial bind. Long-term debt
includes loans for buildings and other long-term
asset loans. The balance of this section provides
a look at how leveraged your company is to
lenders over the long haul. Ongoing debt
payments reduce cash flow and limit growth.
Owners' Equity
Owners' equity is mathematically determined
to be the difference between your assets and
liabilities. In essence, whatever you have left
if you were to sell all of your
assets and pay off debt is the value of the
company at the present time. Equity actually
includes a variety of accounts, but most
commonly it refers to paid-in capital and
retained earnings. Paid-in capital is the par
value, or starting price of your shares if you
are a public company. Retained earnings is
the accumulated value of income you have
collected and retained in the company over
time. If you distribute dividends to owners or
shareholders, this reduces the value of
retained earnings.

You might also like