Balance Sheet Basics

 Balance sheet, income statement and cash flow statement are the three main financial statements which provide useful information which help every business to take quality financial decisions. So, every business person should know about these three financial statements.


If you are new in accounting. You should learn about balance sheet basics. In this lecture, we explain what is balance sheet? What are the equation of balance sheet? What are the assets? What are the liabilities? and What are the net assets?

What is Balance Sheet?

Balance sheet is the two column list of all the assets and liabilities. One side side we have shown all the assets of a business and other-side, we show all the liabilities of business. Both side total will always equal.

What is Balance Sheet Equation?

Balance sheet equation works on the basis of accounting equation. As per this equation, Assets will equal to liabilities and net asset or capital. Total assets represents , What we have. Total liabilities represents, what we own or we have to repay outside. Difference of both will be what we are worth. It means, if today, we business is sold in the market. What value will we get. It is our net asset or net capital. 

What are Assets? 

Assets are resources which bring the money in the pocket. It will be helpful for long term and short term benefits to business. Assets are two types. One is fixed assets. Second is current assets. See below screenshot, there are 5 are current assets and 5 are fixed or long term assets. Every business have to show total assets in these two categories. Current assets can easily converted into cash within one year. But, for converting cash, long term assets needs more than one year. Long term assets are also called capital assets. Most of long term assets will be depreciated.

What are the Liabilities ?

Liabilities are the payable amount which we have to pay outside. These are also two types liabilities. One is current liabilities and second is long term liabilities. Current liabilities are those which are payable within one year. For example, accounts payables. Long term liabilities are those which are payable after one year.

What are the Net Assets or Capital?

Net assets or capital is the difference between total assets and total outside liabilities. If we add the changes in total assets in total assets at the beginning of year, we can also calculate net assets. Changes assets will equal to net profit or net loss in this year. 

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