Showing posts with label Financial Terms. Show all posts
Showing posts with label Financial Terms. Show all posts

Sunday, November 6, 2016

What is a Balance Sheet?

Meaning and Definition:


Balance Sheet, also known as the ‘Statement of Affairs’, is the first and the most important of the three financial statements, the other two being the ‘Profit and Loss Account’ and ‘Cash Flow Statement’. It lists the assets and liabilities of a business as on a particular date.

The assets and liabilities in the statement of affairs balance-out each other and hence the name ‘Balance Sheet’.

Picture explains the concept of assets and liabilities balancing-out
Picture shows a weighing scale where assets and liabilities balance-out each other

Example:

The Great Eastern Shipping Company Ltd.
Balance Sheet as on 31st March 29016

Liabilities
Rs. in Crores (Rs. 10 million)
Assets
Rs. in Crores (Rs. 10 million)
Current Liabilities:
Current Assets:

Short-Term Borrowings
0.00
Cash And Bank Balances
2,624.98
Sundry Creditor (Trade)
 1,223.62
Current Investments
877.97
Other Current Liabilities
 1,057.59
Sundry Debtors (Trade Receivables)
320.56
Short Term Provisions
 1,098.62
Inventory
113.23


Short Term Loans and Advances
90.15


Other Current Assets
114.96
Total Current Liabilities
 2,379.83
Total Current Assets
4,141.85




Term Liabilities:
Non-Current Assets:

Debentures
0.00
Fixed Assets:

Term Loans
 4,930.21
Tangible Assets
10,652.35
Long Term Provisions
37.61
Intangible Assets
0.63
Other Term Liabilities
0.00
Capital Work-in-progress
365.34
Total Term Liabilities
 4,967.82
Total Fixed Assets
11,018.32
Total Outside Liabilities
7,347.65 
Non-Current Investments
0.00


Deferred Tax Assets (Net)
0.57
Net Worth (Shareholders’ Funds):
Long Term Loans and Advances
44.51
Ordinary Share Capital
150.78
Other Non Current Assets
426.30
Reserves & Surplus
8,133.12


Net Worth or Net Assets
 8,283.90
Total Other Non-Current Assets
471.38
Total Liabilities
15,631.55  
Total Assets
15,631.55

Major Break-up of Assets and Liabilities:

Pie-chart depicting major break-up of assets and liabilities
Pie0chart depicting major break-up of assets and liabilities

When total outside liability, that is money owed to outsider or people other than shareholders, is deducted from total assets, we get the net assets or shareholders’ funds. It is also called net worth and belongs to the shareholders who have invested their money in the business.

In the balance sheet of the company or business it is shown as a liability because the shareholders and the business are technically different and separate and the business owes the net worth to the shareholders.

The net assets or the net worth primarily grows out of profits generated by the company.

More the assets and lesser the outside liabilities better it is for the shareholders, as the net assets or the net worth belongs to them.

Conclusion:

Balance Sheet is the most important financial statement. All others support the balance sheet. It lists the assets owned by liabilities owed by a business.

Further Related Reading: