Balance sheet of a company states the financial position of a company as on a given date. Hence, it is also called as the Statement of Financial Position. It includes assets, liabilities and equity. The equation of a balance sheet is Assets = Liabilities +Equity.
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Understanding the balance sheet - CFA Level 1 - Financial reporting and analysis
1. A A R W I N ' S G U I D E T O C F A
P R E S E N T S
U N D E R S T A N D I N G
T H E B A L A N C E
S H E E T
W W W . A A R W I N S W O R L D O F F I N A N C E . C O M
2. BASICS OF
THE
BALANCE
SHEET
Balance sheet of a company
states the financial position
of a company as on a given
date. Hence, it is also called
as the Statement of Financial
Position.
3. T H E B A L A N C E S H E E T
E Q U A T I O N I S
All transactions recorded in an
accounting period finally culminate in
either an increase/decrease of an asset or
increase/decrease of a liability/equity.
assets = liabilities + equity
4. keeps the balance sheet
equation in balance.
(Click here to read more
about accrual accounting)
Accrual
accounting
5. C O M P O N E N T S
O F A B A L A N C E
S H E E T
6. Assets are resources gained from past
transactions that are expected to provide
economic benefits to the company over
future accounting periods.
Assets
7. Liabilities are obligations resulting out of
past transactions that are expected to cause
outflow of economic benefits.
Liabilities
8. Equity is the owner’s residual interest in the
assets after deducting liabilities.
Equity
10. Current and non current
assets and liabilities are
grouped separately and
presented on the balance
sheet.
Assets and liabilities are
listed in order of liquidity.
Classifie
d
Liquidity
based
11. CURRENT
ASSETS AND
NON CURRENT
ASSETS
Current assets are all those
assets which are expected to
be converted into cash or
used up within one year or
one operating cycle,
whichever is greater. Non
current assets are those that
are not expected to convert
into cash in the said time
frame.
12. CURRENT
ASSETS AND
NON CURRENT
LIABILITIES
Current liabilities are all those
financial obligations that are
expected to be settled within
one year or one operating
cycle, whichever is greater.
Non current liabilities are
those that do not meet the
criteria for current liabilities.
13. T H A N K Y O U
F O R Y O U R
T I M E
R E A D T H E C O M P L E T E A R T I C L E O N
A A R W I N ' S G U I D E T O C F A