Financial Terms
Balance Sheet

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Definition of Balance Sheet

Balance Sheet Image 1

Balance Sheet

A financial report showing the status of a company's assets, liabilities, and owners' equity on a given date.

Balance Sheet

A financial statement showing the financial position of a business – its assets, liabilities and
capital – at the end of an accounting period.

Balance sheet

A report that summarizes all assets, liabilities, and equity for a company
for a given point in time.

balance sheet

A term often used instead of the more formal and correct
term—statement of financial condition. This financial statement summarizes
the assets, liabilities, and owners’ equity sources of a business at a
given moment in time. It is prepared at the end of each profit period and
whenever else it is needed. It is one of the three primary financial statements
of a business, the other two being the income statement and the
statement of cash flows. The values reported in the balance sheet are the
amounts used to determine book value per share of capital stock. Also,
the book value of an asset is the amount reported in a business’s most
recent balance sheet.


A “snapshot” statement that freezes a company on a particular day, like the last day of the year, and shows the balances in its asset, liability, and stockholders’ equity accounts. It’s governed by the formula:
Assets = Liabilities + Stockholders’ Equity.

Balance sheet

Also called the statement of financial condition, it is a summary of the assets, liabilities, and
owners' equity.

balance sheet

Financial statement that shows the value of the
firm’s assets and liabilities at a particular time.

Balance Sheet

One of the basic financial statements; it lists the assets, liabilities, and equity accounts of the company. The balance sheet is prepared using the balances at the end of a specific day.

Related Terms:

Balance Sheet Image 2

Balance sheet exposure

See:accounting exposure.

Balance sheet identity

Total Assets = Total Liabilities + Total Stockholders' Equity

common-size balance sheet

balance sheet that presents items as a percentage of total assets.

market-value balance sheet

Financial statement that uses the market value of all assets and liabilities.

Off-balance-sheet financing

Financing that is not shown as a liability in a company's balance sheet.

accounting equation

An equation that reflects the two-sided nature of a
business entity, assets on the one side and the sources of assets on the
other side (assets = liabilities + owners’ equity). The assets of a business
entity are subject to two types of claims that arise from its two basic
sources of capital—liabilities and owners’ equity. The accounting equation
is the foundation for double-entry bookkeeping, which uses a
scheme for recording changes in these basic types of accounts as either
debits or credits such that the total of accounts with debit balances
equals the total of accounts with credit balances. The accounting equation
also serves as the framework for the statement of financial condition,
or balance sheet, which is one of the three fundamental financial
statements reported by a business.

Accounts payable

Acurrent liability on the balance sheet, representing short-term obligations
to pay suppliers.

accounts receivable

Short-term, non-interest-bearing debts owed to a
business by its customers who bought goods and services from the business
on credit. Generally, these debts should be collected within a month
or so. In a balance sheet, this asset is listed immediately after cash.
(Actually the amount of short-term marketable investments, if the business
has any, is listed after cash and before accounts receivable.)
Accounts receivable are viewed as a near-cash type of asset that will be
turned into cash in the short run. A business may not collect all of its
accounts receivable. See also bad debts.

Accounts receivable

A current asset on the balance sheet, representing short-term
amounts due from customers who have purchased on account.

Balance Sheet Image 3

Annual report

Yearly record of a publicly held company's financial condition. It includes a description of the
firm's operations, its balance sheet and income statement. SEC rules require that it be distributed to all
shareholders. A more detailed version is called a 10-K.

Annual report

A report issued to a company’s shareholders, creditors, and regulatory
organizations at the end of its fiscal year. It typically contains at least an income
statement, balance sheet, statement of cash flows, and accompanying footnotes. It
may also contain management comments, an audit report, and other supporting
schedules that may be required by regulatory organizations.

Big Bath

A wholesale write-down of assets and accrual of liabilities in an effort to make the
balance sheet particularly conservative so that there will be fewer expenses to serve as a drag on future earnings.

Book Value

The value of an asset as carried on the balance sheet of a
company. In reference to the value of a company, it is the net worth
(equity) of the company.

book value

Net worth of the firm’s assets or liabilities according
to the balance sheet.

book value and book value per share

Generally speaking, these terms
refer to the balance sheet value of an asset (or less often of a liability) or
the balance sheet value of owners’ equity per share. Either term emphasizes
that the amount recorded in the accounts or on the books of a business
is the value being used. The total of the amounts reported for
owners’ equity in its balance sheet is divided by the number of stock
shares of a corporation to determine the book value per share of its capital


The theoretical amount per share that each stockholder would receive if a company’s assets were sold on the balance sheet’s date. Book value equals:
(Stockholders’ equity) / (Common stock shares outstanding)

Capital lease

A lease obligation that has to be capitalized on the balance sheet.

Capital Lease

One where substantially all of the benefits and risks of ownership are transferred to the lessee. It must be reflected on the company's balance sheet as an asset and corresponding liability.

Capital structure

The makeup of the liabilities and stockholders' equity side of the balance sheet, especially
the ratio of debt to equity and the mixture of short and long maturities.


To make a payment that might otherwise be an expense (in the Profit and Loss account) an asset
(in the balance sheet).


In Finance: to find the present value of a stream of cash flows.
In Accounting: to reflect costs of the balance sheet rather than charge them off through the income statement, as to capitalize major repairs to a fixed asset.


The value of assets that can be converted into cash immediately, as reported by a company. Usually
includes bank accounts and marketable securities, such as government bonds and Banker's Acceptances. Cash
equivalents on balance sheets include securities (e.g., notes) that mature within 90 days.

Cash and equivalents

The value of assets that can be converted into cash immediately, as reported by a
company. Usually includes bank accounts and marketable securities, such as government bonds and Banker's
Acceptances. Cash equivalents on balance sheets include securities (e.g., notes) that mature within 90 days.

Common-base-year analysis

The representing of accounting information over multiple years as percentages
of amounts in an initial year.
Common-size analysis The representing of balance sheet items as percentages of assets and of income
statement items as percentages of sales.


Purchases of goods or services from suppliers on credit to whom the debt is not yet paid. Or a
term used in the balance sheet to denote current liabilities.

Cumulative Translation Adjustment (CTA) account

An entry in a translated balance sheet in which gains
and/or losses from translation have been accumulated over a period of years. The CTA account is required
under the FASB No. 52 rule.

Current asset

Typically the cash, accounts receivable, and inventory accounts on the
balance sheet, or any other assets that are expected to be liquidated within a short
time interval.

current assets

Current refers to cash and those assets that will be turned
into cash in the short run. Five types of assets are classified as current:
cash, short-term marketable investments, accounts receivable, inventories,
and prepaid expenses—and they are generally listed in this order in
the balance sheet.

Current liability

This is typically the accounts payable, short-term notes payable, and
accrued expense accounts on the balance sheet, or any other liabilities that are
expected to be liquidated within a short time interval.

debt-to-equity ratio

A widely used financial statement ratio to assess the
overall debt load of a business and its capital structure, it equals total liabilities
divided by total owners’ equity. Both numbers for this ratio are
taken from a business’s latest balance sheet. There is no standard, or
generally agreed on, maximum ratio, such as 1:1 or 2:1. Every industry
is different in this regard. Some businesses, such as financial institutions,
have very high debt-to-equity ratios. In contrast, many businesses
use very little debt relative to their owners’ equity.


Practice whereby the borrower sets aside cash or bonds sufficient to service the borrower's debt.
Both the borrower's debt and the offestting cash or bonds are removed from the balance sheet.

FASB No. 52

The U.S. accounting standard which was replaced by FASB No. 8. U.S. companies are required
to translate foreign accounts by the current rate and report the changes from currency fluctuations in a
cumulative translation adjustment account in the equity section of the balance sheet.

financial accounting

a discipline in which historical, monetary
transactions are analyzed and recorded for use in the
preparation of the financial statements (balance sheet, income
statement, statement of owners’/stockholders’ equity,
and statement of cash flows); it focuses primarily on the
needs of external users (stockholders, creditors, and regulatory

Financial Covenants

A promise made related to financial conditions or events. Often a promise not to allow certain balance sheet items or ratios to fall below an agreed level. Usually found in loan documents, as a protection mechanism.

financial reports and statements

Financial means having to do with
money and economic wealth. Statement means a formal presentation.
Financial reports are printed and a copy is sent to each owner and each
major lender of the business. Most public corporations make their financial
reports available on a web site, so all or part of the financial report
can be downloaded by anyone. Businesses prepare three primary financial
statements: the statement of financial condition, or balance sheet;
the statement of cash flows; and the income statement. These three key
financial statements constitute the core of the periodic financial reports
that are distributed outside a business to its shareowners and lenders.
Financial reports also include footnotes to the financial statements and
much other information. Financial statements are prepared according to
generally accepted accounting principles (GAAP), which are the authoritative
rules that govern the measurement of net income and the reporting
of profit-making activities, financial condition, and cash flows.
Internal financial statements, although based on the same profit
accounting methods, report more information to managers for decision
making and control. Sometimes, financial statements are called simply

Financial reports or statements

The Profit and Loss account, balance sheet and Cash Flow statement of a business.

fixed assets

An informal term that refers to the variety of long-term operating
resources used by a business in its operations—including real
estate, machinery, equipment, tools, vehicles, office furniture, computers,
and so on. In balance sheets, these assets are typically labeled property,
plant, and equipment. The term fixed assets captures the idea that the
assets are relatively fixed in place and are not held for sale in the normal
course of business. The cost of fixed assets, except land, is depreciated,
which means the cost is allocated over the estimated useful lives of the

In-substance defeasance

Defeasance whereby debt is removed from the balance sheet but not cancelled.

Investment decisions

Decisions concerning the asset side of a firm's balance sheet, such as the decision to
offer a new product.

market capitalization, or market cap

Current market value per share of
capital stock multiplied by the total number of capital stock shares outstanding
of a publicly owned business. This value often differs widely from
the book value of owners’ equity reported in a business’s balance sheet.

net worth

Generally refers to the book value of owners’ equity as reported
in a business’s balance sheet. If liabilities are subtracted from assets, the
accounting equation becomes: assets - liabilities = owners’ equity. In this
version of the accounting equation, owners’ equity equals net worth, or
the amount of assets after deducting the liabilities of the business.

Other assets

A cluster of accounts that are listed after fixed assets on the balance sheet,
and which contain minor assets that cannot be reasonably fit into any of the other
main asset categories.

owners' equity

Refers to the capital invested in a business by its shareowners
plus the profit earned by the business that has not been distributed
to its shareowners, which is called retained earnings. Owners’
equity is one of the two basic sources of capital for a business, the other
being borrowed money, or debt. The book value, or value reported in a
balance sheet for owners’ equity, is not the market value of the business.
Rather, the balance sheet value reflects the historical amounts of capital
invested in the business by the owners over the years plus the accumulation
of yearly profits that were not paid out to owners.

Owners' equity

The total of all capital contributions and retained earnings on a business’s
balance sheet.

Permanent accounts

The accounts found on the balance sheet; these account balances are carried forward for the lifetime of the company.

Prepaid expense

An expenditure that is paid for in one accounting period, but which
will not be entirely consumed until a future period. Consequently, it is carried on the
balance sheet as an asset until it is consumed.

Pro forma statement

A financial statement showing the forecast or projected operating results and balance
sheet, as in pro forma income statements, balance sheets, and statements of cash flows.

Property, plant, and equipment

This item is comprised of all types of fixed assets
recorded on the balance sheet, and is intended to reveal the sum total of all tangible,
long-term assets used to conduct business.

Purchase method

Accounting for an acquisition using market value for the consolidation of the two entities'
net assets on the balance sheet. Generally, depreciation/amortization will increase for this method compared
with pooling and will result in lower net income.


Profits a company plowed back into the business over the years. Last January’s retained earnings, plus the net income or profit that a company made this year (which is calculated on the income statement), minus dividends paid out, equals the retained earnings balance on the balance sheet date.

statement of cash flows

One of the three primary financial statements
that a business includes in the periodic financial reports to its outside
shareowners and lenders. This financial statement summarizes the business’s
cash inflows and outflows for the period according to a threefold
classification: (1) cash flow from operating activities (cash flow from
profit), (2) cash flow from investing activities, and (3) cash flow from
financing activities. Frankly, the typical statement of cash flows is difficult
to read and decipher; it includes too many lines of information and
is fairly technical compared with the typical balance sheet and income

statement of financial condition

See balance sheet.

Statement of retained earnings

An adjunct to the balance sheet, providing more detailed information about the beginning balance, changes, and ending balance in
the retained earnings account during the reporting period.

Stockholder equity

balance sheet item that includes the book value of ownership in the corporation. It
includes capital stock, paid in surplus, and retained earnings.


A financial analysis technique that relates key amounts on the income statement and balance sheet to a 100 percent or base figure for the present and previous year.
It shows the percentage change from last year to this year, making it easier to spot problems that require analysis.

Balance of Merchandise Trade

The difference between exports and imports of goods.

Balance of payments

A statistical compilation formulated by a sovereign nation of all economic transactions
between residents of that nation and residents of all other nations during a stipulated period of time, usually a
calendar year.

Balance of Payments

The difference between the demand for and supply of a country's currency on the foreign exchange market.

Balance of Payments Accounts

A statement of a country's transactions with other countries.

Balance of trade

Net flow of goods (exports minus imports) between countries.

Balance of Trade

See balance of merchandise trade.

Balanced-Budget Multiplier

The multiplier associated with a change in government spending financed by an equal change in taxes.

Balanced fund

An investment company that invests in stocks and bonds. The same as a balanced mutual fund.

Balanced mutual fund

This is a fund that buys common stock, preferred stock and bonds. The same as a
balanced fund.

Balanced Scorecard

A system of non-financial performance measurement that links innovation, customer and process measures to financial performance.

balanced scorecard (BSC)

an approach to performance
measurement that weighs performance measures from four
perspectives: financial performance, an internal business
perspective, a customer perspective, and an innovation and
learning perspective

Basic balance

In a balance of payments, the basic balance is the net balance of the combination of the current
account and the capital account.

Compensating balance

An excess balance that is left in a bank to provide indirect compensation for loans
extended or services provided.

Declining balance

An accelerated depreciation method that calculates depreciation each year by applying a fixed rate to the asset’s book (cost–accumulated depreciation) value. Depreciation stops when the asset’s book value reaches its salvage value.


A method of depreciation.

Double-declining-balance depreciation

Method of accelerated depreciation.

employee time sheet

a source document that indicates, for each employee, what jobs were worked on during the day and for what amount of time

job order cost sheet

a source document that provides virtually
all the financial information about a particular job;
the set of all job order cost sheets for uncompleted jobs
composes the Work in Process Inventory subsidiary ledger

Net cash balance

Beginning cash balance plus cash receipts minus cash disbursements.

On-hand balance

The quantity of inventory currently in stock, based on inventory

Projected available balance

The future planned balance of an inventory item,
based on the current balance and adjusted for planned receipts and usage.

Receivables balance fractions

The percentage of a month's sales that remain uncollected (and part of
accounts receivable) at the end of succeeding months.

Remaining principal balance

The amount of principal dollars remaining to be paid under the mortgage as of
a given point in time.


A computer program that organizes numerical data into rows and columns on a terminal screen,
for calculating and making adjustments based on new data.

Target cash balance

Optimal amount of cash for a firm to hold, considering the trade-off between the
opportunity costs of holding too much cash and the trading costs of holding too little cash.

Term Sheet

A list of the major points of the proposed financing being offered by an investor.

Trial balance

A listing of all the accounts and their balances on a specified day.

zero-balance account

Regional bank account to which just enough funds are transferred daily to pay each day’s bills.

Zero-balance account (ZBA)

A checking account in which zero balance is maintained by transfers of funds
from a master account in an amount only large enough to cover checks presented.

Current rate method

Under this currency translation method, all foreign currency balance-sheet and income
statement items are translated at the current exchange rate.


The difference between the total of all recorded assets and liabilities on the balance

Financing decisions

Decisions concerning the liabilities and stockholders' equity side of the firm's balance
sheet, such as the decision to issue bonds.


A reduction in the balance-sheet valuation of an asset with an accompanying
expense or loss recorded in earnings.







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