The balance sheet shows financial position. examples explained gas jokes

Accountants prepare the Balance sheet after the trial balance period, at the end of the accounting cycle. At all times during the cycle, however, Balance sheet totals for assets equal the sum of liabilities plus owners equities. The balance sheet is a snapshot of the firm’s financial position at one point in time. What is the Balance Sheet?

The Balance sheet ( B/S) is one of the four primary financial statements that publicly held companies must publish every quarter and year. The B/S is viewed as a summary of the firm’s financial position at one point in time. In fact, some firms and most government organizations publish their Balance sheets under the alternate name Statement of financial position.

In principle, a firm could publish a new and different Balance sheet every day. In practice, they normally do so only at the end of fiscal quarters and years. The B/S heading names a date with a phrase such as this: "…at 31 December 2016." A Balance sheet, therefore, is a "snapshot" of the firm’s financial position on that date. The B/S therefore differs from other statements, which report activity for a specific time period. What Does the Balance Sheet Report?

More accurately, the Balance sheet shows end-of-period balances in the firm’s Assets, Liabilities, and Owners Equity accounts. However, its name includes "Balance" for another reason. Note especially that its 3 main sections represent the accounting equation:

The term balance applies because the sum of the firm’s assets must equal (balance) the sum of its liabilities and owner’s equities. This balance holds, always, whether the firm’s financial position is very good, or terrible. Double entry principles in accrual accounting ensure that every change to the total on one side brings an equal, offsetting change on the other side. Where is "Financial Position" on the Balance Sheet?

Those familiar with accounting systems may also note that most of the Balance sheet line items are really the names of accounts from the firm’s Chart of Account. These are, specifically, the "Assets," "Liability," and "Equity" category accounts.

In everyday usage, people think of debits to a checking account, for example, simply as reductions. And, they think of credits as additions. Banks in fact use these terms on account holder statements. Debit and Credit Impacts Depend on Account Category

In double entry accounting, every financial event must impact at least two accounts. Whether each impact is a "debit" or a "credit" depends on the kinds of accounts involved. The double entry approach, moreover, ensures that the Balance sheet always balances. Example: Debits and Credits Maintain the Balance

Suppose the firm acquires assets for $1,000. An asset account (perhaps under Current Assets) increases $1,000. This could be, for instance, an Inventories account. The increase results from a debit because the Inventories account is an Asset account.

These are assets that, in principle, the firm could turn into cash in the near term. "Near term" generally means one year or less. Current assets include, of course Cash on hand, but also Short term investments, Accounts receivable, Inventories, and Prepaid expenses. Long Term Investments and Funds

These are the company’s major physical assets, such as buildings, factory machines, vehicles, and large computer systems. Firms normally charge the cost of these assets against income as depreciation expense across the life of the asset. Note that each year of the asset’s depreciable life, the expense contributes to Accumulated depreciation. As a result, total assets "book value" decreases. Intangible Assets

This is one of the two main categories under Owner’s Equity (the other is Retained earnings). Contributed capital is what stockholders invest by purchasing of stock directly from the company. Contributed capital, in turn, has two main components: Stated capital, which represents the stated, or par value of the shares, and Additional paid-in capital, which represents money paid to the company above the par value. Retained Earnings

After a profitable period, a company can (at the discretion of its board of directors) pay some of its income to shareholders, as dividends, and keep the remainder as Retained earnings. The firm’s cumulative Retained earnings appear on the Balance Sheet under Owner’s Equity.