What is Balance Sheet ?

Balance Sheet is a statement of the assets, liabilities and shareholder’s equity of a company at a given point of time and date. The particular date happens to be the end of the financial year.

The balance sheet gives an idea of the company’s credit and debit along with the amount invested by the shareholders in the company.

As the name suggests, the constituents of a balance sheet have to be in balance, they must be equal. The balance sheet is often referred to as the ‘snapshot’ of a company’s financial status. It is the only part of the basic financial statement which reveals the record of the company’s financial status at a single point of time and not over a period of time. The balance sheet is prepared and maintained by employing a method of accounting called, ‘double-entry bookkeeping’. An accountant prepares the balance sheet. The balance sheet reflects the balance in the two sides of the company’s business, the total assets on one side and total liabilities on the other. All these are updated accounts of the company.

Balance Sheet Segments

The balance sheet is a summary of the assets and liabilities of a company. There are three aspects of a balance sheet. The assets, liabilities and the shareholder’s equity. Each of the three segments within a balance sheet contains accounts which record the value of each. There are two types of assets namely:
Long-term Assets
Current Assets

Among the long term assets are included property, equipment, real estate, biological assets, financial assets, intangible assets, the investments for utilizing the equity method. The current assets include inventories, cash and other payments.

The liabilities section contains the record of the payable accounts, financial liabilities such as the notes and bonds, deferred tax, liabilities and assets for current tax, it contains an account of the interest of the minority in the shareholding equity, the monetary reserves and capital that is issued to the shareholders of the parent concern. The equity section contains a record of the number of shares issues, the value of the shares, the description of the rights and restrictions regarding the issue of shares, the treasury and other shares held by the subsidiaries. It also contains record of shares that are issued under special options and a comprehensive record of the nature and purpose of the reserve. The balance sheet must be prepared by conforming to the formula of:

Assets = Liabilities + Shareholder’s Equity

The sheet is called a balance sheet because a balance has to be established between the two sides. Ideally the the two sides should strike a balance.

According to the Companies Act, the balance sheets have to be published within the financial accounts of all registered companies. In fact, in real terms every company has to prepare a balance sheet because it is an important document regarding the financial affairs of the company.

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Last Updated on : 11th Nov 2016