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Balance Sheet The Balance Sheet presents information about a company's assets, liabilities, and equity. Balance Sheets normally subdivide assets and liabilities into current and non-current categories. The typical reporting period for a Balance Sheet is either the end of a quarter or the end of a fiscal year. A fiscal year is any 12-month period. Assets are things of value that a business owns or controls. A tangible asset has physical form, such as inventory, buildings, and equipment. Assets can be intangible; intangible assets are not physical in nature. Examples include the value of a patent or a trademark, a copyright, and goodwill. Liabilities are obligations owed by the company. An example of a liability would be a company's accounts payable debt. Current liabilities are those due within one year of the date of the Balance Sheet. Long-term liabilities are due in more than one year. Equity, sometimes called net worth, is the difference between the value of assets and that of liabilities. Equity is the obligation of the corporation to its owners after all other creditors have been paid. A Balance Sheet should balance (if it does not, there is a problem). Assets equal total liabilities plus equity. Equity equals assets minus liabilities. Equity can be either positive or negative. When the value of assets exceeds liabilities, equity is positive. When liabilities exceed assets, equity is negative. Most companies have a positive net worth, and creditors are concerned about how much equity the company has in relation to its total liabilities. A company in which liabilities exceed assets has a deficit net worth. From the perspective of an unsecured creditor, any customer reporting a deficit net worth represents an unusually high risk of either late payment or nonpayment. Source: Michael Dennis, author of "Credit and Collection Handbook" available at the NACM Bookstore. |
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