What is the balance sheet?

Jun 28, 2016 | Finance For Non Finance

It shows all your assets and liabilities.

Consider your personal balance sheet.

You may own a house. That is an asset on your balance sheet. In finance we call it a fixed asset, because you’ll keep it probably for a long time.

You may then have a mortgage secured on your house. That is a liability on your balance sheet. We call it a long-term liability, because you’ll have it for a long time.

So you may have a car. Again an asset. If you have a car loan to fund it, then that’s a liability.

Cash in your bank account is called a current asset. Current because it is liquid. That means it is cash or easy to convert into cash.

If you are overdrawn you have a current liability, because we may have to repay it soon.

If you are self employed you pay your tax once a year. So each month a tax liability grows on your balance sheet.

A company balance sheet is exactly the same.

A list at any point in time of all the assets and liabilities the company has.

If you have more assets than liabilities, then that is a good thing.

If you have more liabilities than assets, then you could go bust.

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