Balance Sheet

A balance sheet is one of the three fundamental financial statements.

It provides a snapshot of a company's finances (what it owns and owes) as of the date of publication.

It includes three main categories: Assets (what the company owns), Liabilities (what the company owes) and Shareholder’s Equity which shows how much the owners of a company have invested in the business.

The balance sheet is based on the fundamental equation: Assets = Liabilities + Equity.

Let’s Take a Look at How the Balance Sheet is Structured

Balance sheets, like all financial statements, will have minor differences between organizations and industries. However, there are several “buckets” and line items that are almost always included in common balance sheets.

Let’s take a look at the Balance Sheet line items of Microsoft.

Assets are broken down into current and non-current.

Current assets are liquid and easily converted into cash within one year or less.

Cash is the most liquid of all assets, it appears on the first line of the balance sheet.

Accounts Receivable includes money for goods or services that the company delivered to the customers but they did not pay for it yet.

Inventory includes amounts for raw materials, work-in-progress goods, and finished goods. The company uses this account when it reports sales of goods, generally under cost of goods sold in the income statement.

Non-Currentassets are not liquid.

For Example, Plant, Property, and Equipment (PP&E) Include Land, Building, and Various Types of Equipment.

PP&E captures the company’s tangible assets.

Intangible Assets include patents, copyrights, and trademarks. Intangible assets also include brand and goodwill.

Goodwill is listed here as a separate line item.

Liabilities are also broken down into current (the company has to pay out within a year) and non-current (long-term liabilities).

Accounts Payable is the amount a company owes to its suppliers for items or services delivered.

Current Portion of Long-Term Debt is specifically the portion due within this year of a piece of debt that has a maturity of more than one year. For example, if a company takes on a bank loan to be paid off in 5-years, this account will include the portion of that loan due in the next year.

Then non-current or long-term liabilities are listed below on the Balance Sheet.

Shareholders’ Equity Section

Paid in capital is the payments received from investors in exchange for the company's stock

Retained Earnings is the amount of net income the company decides to keep and not pay out as dividends to its shareholders.

Every period, a company may pay out dividends from its net income. Any amount remaining (or exceeding) is added to (deducted from) retained earnings.