A balance sheet shows how a company stands at a given moment. There is no such thing as a balance sheet covering the year 2018; it can only be for a single date, for example, 31st December, 2018.
A single balance sheet may give some indications as to the company's past, but this may be studied intelligently only in the income accounts and by a comparison of successive balance sheets.
A balance sheet attempts to show how much a corporation has and how much it owes. What it has is shown on the asset side; what it owes is shown on the liability side.
The assets consist of the physical properties of the company, money it holds or has invested, and money that is owed to the company. Sometimes, there are also intangible assets, such as good-will, which are frequently given an arbitrary value. The sum of these items makes up the total assets of the company, shown at the bottom of the balance sheet.
On the liability side are shown not only the debts of the company, but also reserves of various kinds and the equity or ownership interest of the stockholders. Debts incurred in the ordinary course of business appear as accounts payable. More formal borrowings are listed as bonds or notes outstanding. Reserves, may sometimes be equivalent to debt, but frequently they are of a different character.
The stockholders' interest is shown on the liability side as Capital and Surplus. It is often said that these items appear as liabilities because they stand for money owed by the corporation to its stockholders. It may be better to consider the stockholders' interest as representing merely the difference between assets and liabilities, and that it is placed on the liability side for convenience to make the two sides balance.
The total assets and the total liabilities are thus, always equal on a balance sheet, because the capital and surplus items are worked out at whatever figure is needed to make the two sides balance.
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A single balance sheet may give some indications as to the company's past, but this may be studied intelligently only in the income accounts and by a comparison of successive balance sheets.
A balance sheet attempts to show how much a corporation has and how much it owes. What it has is shown on the asset side; what it owes is shown on the liability side.
The assets consist of the physical properties of the company, money it holds or has invested, and money that is owed to the company. Sometimes, there are also intangible assets, such as good-will, which are frequently given an arbitrary value. The sum of these items makes up the total assets of the company, shown at the bottom of the balance sheet.
On the liability side are shown not only the debts of the company, but also reserves of various kinds and the equity or ownership interest of the stockholders. Debts incurred in the ordinary course of business appear as accounts payable. More formal borrowings are listed as bonds or notes outstanding. Reserves, may sometimes be equivalent to debt, but frequently they are of a different character.
The stockholders' interest is shown on the liability side as Capital and Surplus. It is often said that these items appear as liabilities because they stand for money owed by the corporation to its stockholders. It may be better to consider the stockholders' interest as representing merely the difference between assets and liabilities, and that it is placed on the liability side for convenience to make the two sides balance.
The total assets and the total liabilities are thus, always equal on a balance sheet, because the capital and surplus items are worked out at whatever figure is needed to make the two sides balance.
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