A balance sheet includes a company's basic financial information such as all assets and liabilities, and provides a snapshot of that company's financial situation. This type of a financial statement typically breaks the information down into more specific categories, and then provides a tally at the bottom. It is referred to as a balance sheet because it provides the financial balance the company currently has. Although not widely used in personal finances, some people may maintain a personal balance sheet to show personal financial health.
One of the basic premises of all balance sheets is that assets must equal liabilities. In the case where there are shareholders, then assets equal liabilities plus shareholders' equity. This equation is the basic component of nearly all balance sheets. While this may not provide a great deal of information, it will indicate where the company has debt, and how its management spends.
In one column of a business balance sheet are the total assets of a company. These assets will include cash, accounts receivable, and inventory, typically referred to as current assets. The other assets are properties that are harder to liquidate, such as real estate and equipment. Depreciation may be a factor that takes value away from the total assets.
The other column details the total liabilities of the company. These liabilities typically include accounts payable, long-term debt due within 12 months, taxes, wages, and any other current liabilities. Other liabilities include long-term debt, and lease contracts. The other factor is shareholders' equity, which is the value of issued shares.
Most balance sheets are released on a quarterly basis if a company is publicly-traded. However, these quarterly reports are generally not audited by an independent firm. While they are generally reliable, the annual report will include a balance sheet that is typically analyzed more than any of the quarterly reports. Still, all reporting periods give an idea into the direction and financial health of a company.
While not as prevalent as company balance sheets, personal balance sheets offer the chance for individuals to understand a little more about their own financial situation. Some computer programs automatically configure a person's net worth based on information entered into the program. Those computing their net worth in such a manner should try to make sure they enter all assets and liabilities to get the most complete picture. Major purchases, such as a new home or car, can sometimes change these balance sheets very quickly.
