If you’re new to the balance sheet and unsure what the different elements mean, this article will help you understand the most important ones. You’ll learn about the essential elements of the balance sheet, including assets, liabilities, and Owners’ equity. Here are a few examples of each element and how to read the balance sheet. Once you’ve mastered the basics, you can build the perfect balance sheet. But if you are still confused about the B/S, you can get help from experienced accounting firms in Abu Dhabi.
The fundamental concept of a balance sheet is its relationship between assets and liabilities. Assets are things that a business owns that generate economic inflow now and in the future. Examples of such assets are cash, accounts receivable, and building assets. All these are listed on a balance sheet, while liabilities are intangible and non-current assets. The difference between current and non-current assets lies in the accounting treatment.
The liabilities section of the balance sheet is divided into current and long-term debts. The former refers to debts that are due within a year, while the latter relates to debts that are due for more than a year. Financial liabilities include amounts owed to third parties for past services and transactions. They also include past transactions that would result in a benefit later on. A company’s current liabilities usually fall within the short-term category, while long-term liabilities refer to debts the company will have to pay over an extended period.
The owner’s equity section of the balance sheet includes six different components. These include investments made by the owners, payments made to the owners, and net income or loss. Net income is important because it increases the value of an organization, while net loss decreases it. The statement of changes in equity provides information on changes in the value of the owner’s equity over a specific period. It also includes distributions to owners.
The value of owners’ equity is the difference between the cost of an asset and its market value (book value) less accumulated depreciation. This is a conservative measure of retained earnings. However, it does not give a clear picture of the value of the company’s assets. This measurement is often referred to as “asset value.”