Balance Sheet

A balance sheet is a summary of all of the items that a business owns (known as assets) and the items a business owes (known as liabilities). The difference between assets and liabilities, or net assets, is known as equity. A business’ total equity be must equal to the assets minus the liabilities, which gives us the name, balance sheet.

Assets

Current assets - are any assets the business owns which it expects to be sold, consumed or mature in normal operations in the current fiscal year. Typical current assets include cash, cash equivalents, inventory, prepaid expenses and accounts receivable.

Capital assets – are any assets that the business owns which it uses in principal operations to generate revenues or profit. Generally speaking, these assets are not directly sold to a customer, but rather are utilized to generate profit over a long term period through lasting use. Given this, capital assets must be depreciated. Depreciation represents pro-longing the cost of the assets and recognizing it as an expense over the useful life of such assets. Typical capital assets might include land, buildings, vehicles, equipment, furniture, computers, fixtures and machinery.

Long-term Assets – are any assets that the business owns which it does not use in principal operations. Typically these assets are not easily converted into cash, and are not expected to be sold, consumed or mature in the current period. Typical long term assets might include investments or intangible assets (such as trademarks or goodwill).

Liabilities

Current Liabilities – are any liabilities that the business owes which it expects to settle or pay in normal operations in the current fiscal year. Typical current assets include accounts payable, deferred or unearned revenue or customer deposits.

Long term Debt – are any loans, debt or liabilities which the company has attained to finance the business. Long term debt is not expected to be repaid in normal operations in the current fiscal year, however often a current portion or amount to be paid in the coming fiscal period is shown separate. Typically long term debt is held by banks, financial institutions, credit facilities or shareholders.

Long-term liabilities – are any liabilities that the business owes which it does not expect to settle or pay in normal operations in the current fiscal year. Typical long-term liabilities might include warranty provisions, asset retirement obligations or pension and employee benefit obligations.

Equity

Share Capital – are shares or issued capital representing the company’s liabilities to owners. Typically this represents the liability for cash or capital provided by shareholders to the business.

Retained Earnings – are the accumulated earnings, or profit earned each year, over the life of the business. Typically the retained earnings are maintained to continue the operations of the business, unless they are paid out to the shareholders in the form of dividends.