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In ). A balance sheet is often described as a "snapshot" of the company's financial condition on a given date. Of the four basic Financial Statements , the balance sheet is the only statement which applies to a single point in time, instead of a period of time. A simple business operating entirely in cash could measure its profits by simply withdrawing the entire bank balance at the end of the period, plus any cash in hand. However, real businesses are not paid immediately; they build up inventories of goods to sell and they acquire buildings and equipment. In other words: businesses have Asset s and so they could not, even if they wanted to, immediately turn these into cash at the end of each period. Real businesses also owe money to suppliers and to tax authorities, and the proprietors do not withdraw all their original capital and profits at the end of each period. In other words businesses also have Liabilities . A modern balance sheet usually has three parts: assets, liabilities and Shareholders' Equity . The main categories of assets are usually listed first and are followed by the liabilities. The difference between the assets and the liabilities is known as the 'net assets' or the 'net worth' of the company. The net assets shown by the balance sheet equals the third part of the balance sheet, which is known as the . In this sense, shareholders' equity by construction must equal assets minus liabilities, and are a Residual . BALANCE SHEET STRUCTURE A balance sheet summarizes an organization or individual's assets, equity and liabilities at a specific point in time. Individuals and small businesses tend to have simple balance sheets Personal balance sheet structure US Small Business Administration sample spreadsheet for a small business . Larger businesses tend to have more complex balance sheets, and these are presented in the organization's Annual Report . Microsoft Corporation balance sheet, June 30, 2004 Large businesses also may prepare balance sheets for segments of their businesses. International Business Machines "Global Financing" balance sheet comparing 2003 to 2004 A balance sheet often ''compares'' two balance sheets for a single organization. Balance sheet comparing two year-end balance sheets Balance sheet comparing monthly balances Guidelines for corporate balance sheets are given by the International Accounting Standards Committee and numerous country-specific organizations. Balance sheet account names and usage depend on the organization's country and the type of organization. Government organizations do not generally follow standards established for individuals or businesses. University of Calgary (Canada) Financial Services balance sheet accounts University of Victoria (Canada) balance sheet accounts University of Minnesota (USA) balance sheet accounts State of Alabama (USA) balance sheet accounts New York State (USA) public utilities balance sheet accounts If applicable to the business, summary values for the following items should be included on the balance sheet: "Presentation of Financial Statements" International Accounting Standards Board. Accessed 24 June 2007 . Assets Long-term Asset s # Property, Plant And Equipment # investment property, such as Real Estate held for investment purposes # Intangible Asset s # financial assets (excluding investments accounted for using the equity method, accounts receivables, and cash and cash equivalents) # investments accounted for using the Equity Method # Biological Asset s Current Asset s # Inventories # Accounts Receivable # Cash And Cash Equivalents Liabilities # Accounts Payable # Provisions for warranties or court decisions # financial liabilities (excluding provisions and accounts payable), such as Promissory Note s and Corporate Bond s # liabilities and assets for current Tax # Deferred Tax liabilities and deferred tax assets # Minority Interest in equity # issued capital and Reserves attributable to equity holders of the Parent Company Equity # numbers of Shares authorised, issued and fully paid, and issued but not fully paid # Par Value of shares # reconciliation of shares outstanding at the beginning and the end of the period # description of rights, preferences, and restrictions of shares # Treasury Shares , including shares held by Subsidiaries and associates # shares reserved for issuance under Option s and Contract s # a description of the nature and purpose of each reserve within owners' equity SAMPLE BALANCE SHEET STRUCTURE The following balance sheet structure is just an example. It does not show all possible kinds of assets, equity and liabilities, but it shows the most usual ones. Because it shows Goodwill it could be a Consolidated balance sheet. Monetary values are not shown, summary (total) rows are missing as well. Balance Sheet of XYZ, Ltd. as of 31 December 2006 ASSETS Current Assets Cash And Cash Equivalents Accounts Receivable Inventories Prepaid Expenses Investments held for trading Other current assets Fixed Assets (Non-Current Assets) Property, plant and equipment Less : Accumulated Depreciation Goodwill Other Intangible Fixed Assets Investments In Associates Deferred Tax assets LIABILITIES and EQUITY Current liabilities Accounts Payable Current income tax liabilities Current portion of bank loans payable Short-term Provisions Other current liabilities Long term Liabilities (Fixed Liabilities) Bank Loans Issued Debt Securities Deferred Tax liability Provisions Minority Interest Equity Share Capital Capital Reserves Revaluation Reserve Translation Reserve Retained Earnings EQUITY VALUATION The real value to a purchaser of the business or a shareholder may be different from the net assets shown by the balance sheet. This is because factors that affect the value of a business may not be recorded yet. For example, a purchaser will be interested in the future earnings of the business, whether assets such as property have been revalued recently, and whether there are potential liabilities in the future such as lawsuits. The value of the assets in the balance has also been based on the assumption that the business is a going concern, otherwise the break-up value of the assets may be far less than the value in the balance sheet. CONSTRUCTING A BALANCE SHEET Case Study 1.1 A new business starts up as a limited liability company called Sunrise Ltd by raising $10,000 from the owners i.e. share holders. The money is put into a new bank account. What would the assets, liabilities and equity be? Assets: Bank Balance 10,000 Equity & Liabilities: Share Capital 10,000 1.2 They then use 6,000 of its bank account to buy a delivery van. Assets and liabilities after this transaction: Assets: Bank Balance 4,000 Delivery Van 6,000 Equity & Liabilities: Share Capital 10,000 1.3 Sunrise Ltd then buys some inventory at 3,000 on credit. Assets and liabilities after this transaction: Assets: Bank Balance 4,000 Delivery Van 6,000 Inventory 3,000 Liabilities: Accounts Payable 3,000 (to be paid to creditors) Equity: Share Capital 10,000 Total assets must always equal total liabilities (and equity). It is inevitable as the liabilities (and equity) are providing the funds that we are spending on these assets. 1.4 Shortly afterwards, after selling 1,000 of inventory for 2,500, payment of 2,600 of the accounts payable and the purchase of 2,200 of machinery financed by a 2,200 bank loan, the assets and liabilities change to the following: Points to note:
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