The Balance Sheet Examples
Basis of the financial statements: the balance sheet
The Canadian balance sheet shows the financial position of a company, which is why this statement is generally referred to as the “balance sheet”. The first important point to note is that the balance sheet is set up so that the position of the entity is reported at a particular point in time (example as of December 31, 20xx), while other statements such as the income statement show the operating performance of the company for a certain period of time as “for the year ending December 31, 20xx”. “In this example, the profit and loss account is to cover a full year from 1 January to 31 December, which is also referred to as calendar year end.
In addition, the balance sheet consists of three important elements to consider. It shows the balances of all assets, liabilities and equity accounts of the company. It is important to understand the basic accounting equation in the preparation and presentation of the balance sheet, where assets = liabilities + equity.
Assets: Contains all resources that belong to the company as of the balance sheet date. This includes both short-term and long-term assets that the company uses to realize future economic benefits. Short-term assets most frequently included in the balance sheet include cash, receivables and inventories. These are resources that management expects to be converted into cash within one year or within the operating cycle of the entity, whichever is longer. Debtor accounting is simply the amount that customers owe to the company and that results from the sale of goods and services on account. The long-term assets therefore include all resources of the company that have a useful life of more than one year. These assets are often referred to as investments that include equipment, buildings and land. Note that all short-term or long-term assets mentioned so far can be classified as property, plant and equipment containing physical substances. However, the balance sheet also includes intangible assets, which are also reported as noncurrent assets because they have a useful life of more than one year but do not contain physical assets such as goodwill and patents. The total of current and non-current assets corresponds to the total assets of the Company and is shown in the balance sheet.
Liabilities: Represents the claims against the assets of the Company that were not settled at the balance sheet date. Therefore, these are obligations to the creditors of the company. Debts are subdivided into short-term and long-term assets, as are assets. Accounts payable is a frequent account that is shown in the balance sheet and is essentially the opposite of the debtor balance. While the receivables for accounts receivable from the Company relate to a customer sale on account, the liabilities of the Company to its creditors are liabilities from purchases on account, both of which are expected to be recovered within 30 days or, as a general rule be paid. Long-term liabilities represent obligations that are not settled for more than one year or for the longer operating cycle of the enterprise. The non-current liabilities (non-current) shown in the balance sheet include long-term bank loans and debt securities. The creditor’s assets against the assets can be determined using the basic accounting equation above, where the assets of the entity correspond to the creditor’s claim representing the liabilities plus the owner’s claim on the assets representing the company’s equity.
Equity: According to the fundamental accounting equation one can conclude that equity = assets – liabilities. On closer examination, it can be clearly seen that the equity represents the value of a company, after the liabilities have been reduced from the assets of the company. Often, equity is referred to as the remainder of a company. It is also important to note that creditors’ claims on assets are always settled first before the owner’s claim can be realized.
Representation example for the balance sheet
ABC Company (COMPANY NAME)
Presentation of the financial position
As of 31 December 20xx
Cash $ 2,000
Accounts Receivable 1,000
Total current assets 7,000 USD
Construction of $ 75,000
Total long-term assets 82,000 USD
TOTAL 89,000 USD
Accounts Payable $ 3,000
Total current liabilities $ 4,500
Lease liability 1,000
LIABILITIES TOTAL $ 5,500
NAME OF THE OWNER, Capital 83.5000
LIABILITIES TOTAL AND 89,000 USD
The example of the balance shown above shows several key features. The headline indicates the name of the company and clearly indicates what type of financial report is displayed and the period of time it covers. In addition, the balance sheet is a visual representation of the basic accounting equation. The left side of the statement represents assets that are also the left side of the equation. The right side of the explanation represents the owner’s liabilities and equity, which in turn captures the right side of the equation. As a result, the balance sheet is only perfectly balanced if the balance sheet total of the balance sheet total corresponds to the liabilities and the equity of the owner.
After examining the above section on equity in the balance sheet and stating the name of the company reporting the financial statements, it is important to recognize that the organizational form in this example is that of an owner rather than a company. The balance sheet difference reported by a company and a stock corporation is mainly in the area of equity. The capital of an owner includes the initial investment in the company, the net income (profits) or the net loss (losses) and is mitigated by any draws (withdrawals of the owner for personal use). In a company, however, these amounts are split into two common accounts: paid-in capital and retained earnings. The contributed capital, also referred to as share capital, represents the investments made by the shareholders of the company. Retained earnings are the accumulated earnings / losses of the company since inception and include all dividends distributed to shareholders. Dividends are similar to draws in that they both reduce the equity account because they make the distribution of equity to shareholders or owners.