BALANCE SHEET— WHAT & WHY?
By: Akash Jain
Tags: Investment, Balance Sheet, Financial Statements, Finance, Investors

Image Credits: Akash Jain

A two-column table that helps you to identify total assets, and what it takes to acquire those assets at a particular point in time.is known as the Balance Sheet.

Two-column are categorized as:

a) Assets

b) Liabilities and Shareholder’s Equity.

These two columns must be equated as

Assets = Liabilities + Shareholder’s Equity

What do these terms mean and do they constitute anything within them or standalone?

If we talk about Assets then assets can be summarized as cash or cash equivalents, further divided into two sub-categories:

a) Current

b) Non-Current

Liabilities on the other hand display the amount of money that a company owes, further divided into two sub-categories:

a) Current

b) Non-Current

Assets

Current Assets

Current as name summarised itself which is cash itself or can be converted into cash within a year. Some of the Current assets are:

a) Cash and Cash Equivalents -Cash equivalents include bank accounts and marketable securities, which are debt securities with maturities of less than 90 days.

b) Accounts Receivables -Legally binding bills on which goods or services are rendered on credit.

c) Inventory -Goods that are ready to sell.

d) Prepaid Expense- Expenses that are already paid but not due.

e) Short-Term Investments -They include Bank accounts or any other investment which can be liquidated at any time.

Non-Current Assets

are those which are cash equivalent but can only be converted into cash after a year. Some of the Non-Current assets are:

a) Property, Plant, and Equipment -Land, Machinery, or any other fixed asset purchased for production or any other business-related activity.

b) Intangible Assets -Goodwill (Nike’s name plays a vital role in its sale.) Other examples are patents, copyright, franchises, trademarks, and trade names, as well as software

c) Capital Work-in-Progress -Capital used for any fixed asset is considered under capital work in progress.

d) Financial Assets -Investment in Long-term Bonds, Equity holding more than 1 year.

e) Investments -Investment in fixed assets that are not the primary part of the business.

f) Loans -Any long-term loan provided to any individual or a firm.

g) Deferred Tax Assets (Net) -Advance payment of tax.

Liabilities

Current Liabilities

The money which the company owes and has to re-paid within a year is categorized under Current Liabilities.

a) Account payables -Money owed to the suppliers.

b) Un-earned revenues -Payment received but the services are due also known as deferred revenue or advance payment.

c) Notes Payables -Legally binding contract indicating the future payment owed by the company.

d) Current portion of Long term Debt -It is the amount of unpaid principal from long-term debt that has accrued in a company’s normal operating cycle (typically less than 12 months). It has to be paid within that period.

Non-Current Liabilities

a) Bonds Payables -Amount due to bondholders (Entities who purchased bonds of a company for a fixed period of time for a specific Interest rate {either variable or fixed}).

b) Long Term Debt -Long-term loan is taken by a company for Expansion or to Re-structure.

c) Deferred Tax Liabilities -Any tax amount which is due to the tax authorities.

d)Provisions -Amount kept aside for future uncertainties by the company.

Share Holders Equity

Indicates the amount invested by the owners of the company. Three categories to it are:

a) Common Shares -Shares that are issued to the owners or investors of the company.

b) Retained Earnings -Part of Net Income which is left after distributing dividends to the common shareholders.

c) Preferred Shares -Those shares which have the priority to dividends before common shareholders.

This Summarises the part of the question what.