Balance Sheet

Introduction

A balance sheet is a financial statement that summarizes a company's assets. liabilities and shareholders' equity at a specific period of time. In other words, It is a statement of the assets, liabilities, and capital of a business or other organization at a particular point in time. It is one of the three fundamental financial statements (Income Statement, Balance Sheet, Cash Flow Statement).

Usually, It is prepared in every quarter, six months or one year depending on company's and law's requirements.

Components of Balance Sheet  

1. Assets: Assets are the items or properties owned by person or company having value to meet various financial needs. The assets can be classified into three categories. They are
   

• Real Assets: It is also known as Fixed Assets or Non-Current Assets. Those assets which can not be converted quickly into cash. These assets are also called physical assets due to inherent physical worth. Basically, its has purchased  for long-term purpose having high cost falling under the capital expenditure. It includes various types of assets land, buildings, equipment etc.

• Tangible Assets: It is also known as hard assets, are physical items with a clear purchase value used by a business to produce goods and services.  

• Intangible Assets: It is an assets that is not physical in nature. Goodwill, brand recognition and intellectual property, such as patents, trademarks, and copyrights, are all intangible assets
   

• Current Assets: Those assets which can be converted into a cash within a year called current assets. These assets are basically two types mentioned as bellows: 

• Liquid Assets: Those current assets which can be converted into a cash within a month called liquid assets. Example: Bank balances and Financial Assets. 

• Floating or circulating Assets: Those assets which is continually changing in quantity or value in value such as account receivables, cash , inventory, outstanding shares etc.
  

2.  Shareholder's Equity: It is also known as stockholder's equity. It represents net worth of the company. It the amount that is return to its shareholders. It is the shareholder's claims on total assets of the company after paying total debt (both long-term and short-term debts) to its lenders. It can be expressed as 

   
    Fig: Categories of Shareholder's Equity
   

• Common Stocks:  It an owners investments in the business. These shares have voting rights to select the BOD and claiming right over its net assets. 

• Preferred Stocks: It is more similar to common stock but it has no voting right but get cumulative dividend or return after debts payoff. 

• Retained Earnings: It is the cumulative net incomes that are not paid to its shareholder. It may be called cumulative of net income after paying some dividend from net income to its shareholders. 

• Additional Paid-in Capital: It the amount paid by investor while share purchase or sold over its par value.These are different types share capitals or simply capital that a company is determined and expected to issue for growth of the business. The following figure shows the list of capitals as an example below.

3. Liabilities: It is something that a person or company owes usually the sum of money. It is the financial obligation of the company that says deductible the net profit in the future. Basically, the liabilities can be broadly classified into two categories described as bellows: 

• Non-current Liabilities: Those liabilities which will be paid after one years or long period period of time are called non-current liabilities such as bond payable, long-term loan etc. 

• Current Liabilities: Those liabilities which will be paid with a 90 days are called current liabilities. It is also known as short-term liabilities.
  

Note 1: Fictitious Assets is not a real asset but deferred expenses that are shown in assets in the balance sheet. ... Expenses or losses that are not written off during the accounting period of occurrence because they give long-term benefit over a period of time are categorized as fictitious assets. Example: preliminary expenses.  

Note 2: Contingent liabilities are the liability that may occur or not depending on the future uncertain events.  It could be non-current liabilities or current liabilities depending on the nature of future obligation. But mostly it is considered as current liabilities like warranties or guaranties.

Forms of Share Capitals

The money raised by the company by issuing shares to general public is known as share capital. Basically, there are five forms or types of share capitals presented in the following figures as below:

Fig: Forms or Types of Share Capitals

1. Authorized Capital: It is the maximum share capital that a company can issues to general public either in one or portion by portion.
   

2. Issued Capital: It is the some portion of authorized capital that a company has issued to the public.
   

3. Subscribed Capital: It is the portion of issued capital that an actually purchased or subscribed by the public.
   

4. Called-Up Capital: It is the portion or fully of subscribed capital that a company called to public for payment.
   

5. Paid-Up Capital: It is the amount of total called-up capital that an investor actually paid to get the share of company.
   

Different Format of Balance Sheet

Basically, there are three types of formats for Balance Sheet. Each format can be used for presentation depending on the company's and laws requirements. 

• Vertical Balance Sheet: Under this format, the Shareholder's Equity and Liabilities are placed left side of balance sheet while Assets are in the right side.
  

• Horizontal Balance Sheet: Under this format, the assets are placed at the top of balance sheet while Shareholder's Equity and Liabilities are at the bottom.

• Classified Balance Sheet: It is the extension of vertical format of Balance Sheet. Under this format, working capital and net worth should be shown by separating current assets and current liabilities of the company respectively.
  

Conclusion

A balance sheet is a financial statement that summarizes a company's assets. liabilities and shareholders' equity at a specific period of time. Usually, It calculated or prepared after every quarter, six months or one year. Balance sheet has basically three components include Assets, Liabilities and Equities. There are four categories of shareholder's equity include common stocks, preferred stocks, retained earnings and additional paid-in capital. But it has five forms or types of share capital includes authorized capital, issued capital, subscribed capital, called-up capital and paid-up capital. There are three types of formats for Balance Sheet include vertical, horizontal and classified balance sheet.

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