Course Outline
Join PRO

What does a balance sheet tell us?

Author:
Harold Averkamp, CPA, MBA

Definition of Balance Sheet

A balance sheet reports the dollar amounts of a company’s assets, liabilities, and  owner’s equity (or stockholders’ equity) as of midnight of the date shown in the heading.

Examples of Balance Sheet Elements

Assets that are reported on the balance sheet are the company’s resources such as cash, accounts receivable, inventory, investments, land, buildings, equipment, some intangible assets . Generally assets are reported at their cost or a lower amount due to the cost principle, depreciation, and conservatism. The cost principle also means that some very valuable aspects of the company are not listed as assets. For example, a company’s outstanding reputation, its effective management team, and its amazing brand recognition are not reported as assets if they were not acquired in a transaction involving another party or entity.

Liabilities are a company’s obligations as of the balance sheet date and will include loans payable, accounts payable, accrued expenses not yet recorded in accounts payable, warranty obligations, taxes payable, and more.

Stockholders’ equity or owner’s equity reports the amounts that were invested by the owners plus the company’s earnings that the owners chose not to withdraw as dividends or drawings.

Additional Balance Sheet Information

The balance sheet classifications allow the reader to easily compute the amount of a company’s working capital and to determine if a company is highly leveraged.

Every balance sheet that is distributed by a company should include notes (or footnote disclosures). These notes provide important additional information concerning the company’s financial position including potential liabilities not included in the amounts reported on the face of the balance sheet.

Join PRO to Track Progress

Advance Your Accounting and Bookkeeping Career

Must Watch image

  • Perform better at your job
  • Get hired for a new position
  • Understand your small business
  • Pass your accounting class
Watch the Video
Certificates of Achievement

Earn Our Certificates of Achievement

Certificates of Achievement
  • Debits and Credits
  • Adjusting Entries
  • Financial Statements
  • Balance Sheet
  • Income Statement
  • Cash Flow Statement
  • Working Capital and Liquidity
  • Financial Ratios
  • Bank Reconciliation
  • Accounts Receivable and Bad Debts Expense
  • Depreciation
  • Payroll Accounting
View PRO Plus Features

Join PRO or PRO Plus and Get Lifetime Access to Our Premium Materials

Read all 2,651 reviews

Features

PRO

PRO Plus

Features
Lifetime Access (One-Time Fee)
Explanations
Quizzes
Q&A
Word Scrambles
Crosswords
Bookkeeping Video Training
Financial Statements Video Training
Flashcards
Visual Tutorials
Quick Tests
Quick Tests with Coaching
Cheat Sheets
Bookkeeping Study Guide
Managerial Study Guide
Business Forms
All PDF Files
Progress Tracking
Earn Badges and Points
Certificate - Debits and Credits
Certificate - Adjusting Entries
Certificate - Financial Statements
Certificate - Balance Sheet
Certificate - Income Statement
Certificate - Cash Flow Statement
Certificate - Working Capital
Certificate - Financial Ratios
Certificate - Bank Reconciliation
Certificate - Accounts Receivable and Bad Debts Expense
Certificate - Depreciation
Certificate - Payroll Accounting

About the Author

Harold Averkamp

For the past 52 years, Harold Averkamp (CPA, MBA) has
worked as an accounting supervisor, manager, consultant, university instructor, and innovator in teaching accounting online. He is the sole author of all the materials on AccountingCoach.com.

Learn More About Harold

Read 2,651 Testimonials

Take the Tour Join Pro Upgrade to Pro Plus