Balance sheets are one of the primary statements used to determine the net worth of a company and get a quick overview of it's financial health. The ability to read and understand a balance sheet is a crucial skill for anyone involved in business, but it's one that many people lack.
When it comes down to it, the balance sheet is just a more detailed version of the fundamental accounting equation:
Assets = Liabilities + Equity
You've probably heard at least some of these terms before but what do they actually mean? Let's break it down:
The assets are the operational side of the company, basically a list of what the company owns. Everything listed there is an item that the company has control over and can use to run the business.
In a sense, the left side of the balance sheet is the business itself – the buildings, the inventory for sale, the cash from selling goods, etc. If you were to take a clipboard and record everything you found in a company, you would end up with a list that looks remarkably like the left side of the Balance Sheet. The assets are what allow the company to run.
Liabilities and equity make up the right side of the balance sheet and cover the financial side of the company. This is a list of what the company owes. With liabilities, this is obvious – you owe loans to a bank, or repayment of bonds to holders of debt, etc. The interest rates are fixed and the amounts owed are clear. These are also listed on the top because, in case of bankruptcy, these are paid back first before any other funds are given out.
Below liabilities on the balance sheet, you'll find equity, the amount owed to the owners of the company. Since they own the entire company, this amount is intuitively based on the accounting equation – whatever is left over of the Assets after the liabilities have been accounted for must be owned by the owners, by equity. These are listed on the bottom, because the owners are paid back second, only after all liabilities have been paid.
However, unlike liabilities, equity is not a fixed amount with a fixed interest rate. This means that any time the value of assets change – perhaps you receive more in cash from a sale than the value of the inventory you sold, or you were forced to write-down a truck that was involved in a collision and no longer works – the value of equity changes.
Because the value of liabilities is constant, all changes to assets must be reflected with a change in equity. This is also why all revenue and expense accounts are equity accounts, because they represent changes to the value of assets.
So, to recap, you'll find the assets (what's owned) on the left of the balance sheet, liabilities (what's owed) and equity (the owner's share) on the right, and the two sides remain balanced by adjusting the value of equity. And there you have it!
Want to dive deeper into balance sheets, assets, liabilities, and equity? Check out HBX CORe, the online fundamentals of business program from Harvard Business School!
About the Author
Brian is a member of the HBX Course Delivery Team and is currently working to design a Finance course for the HBX platform. He is a veteran of the United States submarine force and has a background in the insurance industry. He holds an MBA from McGill University in Montreal.
Balance Sheet ni moja ya taarifa za msingi zinazotumiwa kuamua thamani ya kampuni na kupata muhtasari wa haraka wa afya yake ya kifedha. Uwezo wa kusoma na kuelewa hesabu ya usawa ni ujuzi muhimu kwa mtu yeyote anayehusika katika biashara, lakini ni moja ambayo watu wengi hawana. Kwa mfano, katika akaunti ya benki, hesabu ya jumla ni sawa na hesabu ya msingi ya uhasibu: mali = dhima + usawa wa mali. Kwa ufupi, mali ni sehemu ya uendeshaji wa kampuni, ambayo ni orodha ya mali ambazo kampuni inamiliki. Kila kitu kilichoorodheshwa hapo ni kitu ambacho kampuni ina udhibiti juu yake na inaweza kutumia kuendesha biashara. Kwa maana fulani, upande wa kushoto wa hesabu ni biashara yenyewe - majengo, hesabu ya kuuza, fedha kutoka kuuza bidhaa, nk. Kama wewe ni kuchukua clipboard na kurekodi kila kitu wewe kupatikana katika kampuni, wewe kuishia na orodha ambayo inaonekana ajabu kama upande wa kushoto wa Balance Sheet. Mali ni nini kuruhusu kampuni ya kukimbia. Dhima na usawa huunda upande wa kulia wa usawa na kufunika upande wa kifedha wa kampuni. Hii ni orodha ya kile ambacho kampuni inadaiwa. Pamoja na madeni, hii ni dhahiri <unk> wewe deni mikopo kwa benki, au malipo ya dhamana kwa wamiliki wa deni, nk. Viwango vya riba vimewekwa na kiasi cha deni ni wazi. Hizi pia zimeorodheshwa juu kwa sababu, katika kesi ya kufilisika, hizi zinalipwa nyuma kwanza kabla ya fedha nyingine yoyote kutolewa. Chini ya dhima kwenye usawa wa fedha, utapata usawa, kiasi kinachostahili wamiliki wa kampuni. Kwa kuwa wana kampuni nzima, kiasi hiki ni intuitively msingi juu ya hesabu equation <unk> chochote ni kushoto juu ya mali baada ya madeni wamekuwa accounted kwa lazima kuwa inayomilikiwa na wamiliki, kwa usawa. Hizi zimeorodheshwa chini, kwa sababu wamiliki hulipwa nyuma ya pili, tu baada ya madeni yote kulipwa. Hata hivyo, tofauti na madeni, equity si kiasi fasta na kiwango cha riba fasta. Hii inamaanisha kwamba wakati wowote thamani ya mali inabadilika - labda unapokea pesa nyingi kutoka kwa uuzaji kuliko thamani ya hesabu uliyouza, au ulilazimika kuandika chini lori ambalo lilihusika katika mgongano na halifanyi kazi tena - thamani ya mabadiliko ya usawa. Kwa sababu thamani ya madeni ni mara kwa mara, mabadiliko yote ya mali lazima kuonyeshwa na mabadiliko katika usawa. Hii ni kwa nini akaunti zote za mapato na gharama ni akaunti za usawa, kwa sababu zinawakilisha mabadiliko ya thamani ya mali. Kwa hiyo, kwa kukumbuka, utapata mali (ni nini inayomilikiwa) upande wa kushoto wa usawa, dhima (ni nini inayostahili) na usawa (sehemu ya mmiliki) upande wa kulia, na pande zote mbili kubaki usawa kwa kurekebisha thamani ya usawa. Na hapo ndipo ulipopata! Unataka kupiga mbizi zaidi katika hesabu za usawa, mali, madeni, na usawa? Hifadhi ya HBX Core, Programu ya Msingi ya Biashara ya Harvard Business School Brian ni mwanachama wa HBX Course Delivery Team na kwa sasa anafanya kazi ya kubuni kozi ya Fedha kwa jukwaa la HBX. Yeye ni mkongwe wa jeshi la majini la Marekani na ana historia katika sekta ya bima. Ana shahada ya MBA kutoka Chuo Kikuu cha McGill huko Montreal.