Balance Sheet Items Classifications
The items which are generally present in all the Balance sheet includes Assets like Cash, inventory, accounts receivable, investments, prepaid expenses, and fixed assets; liabilities like long-term debt, short-term debt, Accounts payable, Allowance for the Doubtful Accounts, accrued and liabilities taxes payable; and the Shareholders’ equity-like Share capital, additional paid-in capital and retained earnings.
The most common balance Sheet items are listed below –
- Cash and Equivalents (Current Assets)
- Marketable SecuritiesMarketable SecuritiesMarketable securities are liquid assets that can be converted into cash quickly and are classified as current assets on a company's balance sheet. Commercial Paper, Treasury notes, and other money market instruments are included in it.read more (Current Assets)
- Account ReceivablesAccount ReceivablesAccounts receivables refer to the amount due on the customers for the credit sales of the products or services made by the company to them. It appears as a current asset in the corporate balance sheet.read more (Current Assets)
- Inventories (Current Assets)
- Prepaid Expense (Current Assets)
- Property, Plant, and Equipment (Fixed Assets)
- Intangible AssetsIntangible AssetsIntangible Assets are the identifiable assets which do not have a physical existence, i.e., you can't touch them, like goodwill, patents, copyrights, & franchise etc. They are considered as long-term or long-living assets as the Company utilizes them for over a year. read more (Fixed Assets)
- Account PayableAccount PayableAccounts payable is the amount due by a business to its suppliers or vendors for the purchase of products or services. It is categorized as current liabilities on the balance sheet and must be satisfied within an accounting period.read more (Current Liabilities)
- Unearned RevenueUnearned RevenueUnearned revenue is the advance payment received by the firm for goods or services that have yet to be delivered. In other words, it comprises the amount received for the goods delivery that will take place at a future date.read more (Current Liabilities)
- Short Term Debt (Current Liabilities)
- Current Portion of Long-term DebtCurrent Portion Of Long-term DebtCurrent Portion of Long-Term Debt (CPLTD) is payable within the next year from the date of the balance sheet, and are separated from the long-term debt as they are to be paid within next year using the company’s cash flows or by utilizing its current assets.read more (Current Liabilities)
- Other Accrued ExpensesAccrued ExpensesAn accrued expense is the expenses which is incurred by the company over one accounting period but not paid in the same accounting period. In the books of accounts it is recorded in a way that the expense account is debited and the accrued expense account is credited.read more and Liabilities (Current Liabilities)
- Long term DebtLong Term DebtLong-term debt is the debt taken by the company that gets due or is payable after one year on the date of the balance sheet. It is recorded on the liabilities side of the company's balance sheet as the non-current liability.read more (Long Term Liabilities)
- Paid-in CapitalPaid-in CapitalPaid in Capital is the capital amount that a Company receives from investors in exchange for the stock sold in the primary market, including common or preferred stock. This considers the sale of stock that an issuer directly sells to the investor & not the sale of stock on the secondary market between investors. read more (Shareholders Equity)
- Retained EarningsRetained EarningsRetained Earnings are defined as the cumulative earnings earned by the company till the date after adjusting for the distribution of the dividend or the other distributions to the investors of the company. It is shown as the part of owner’s equity in the liability side of the balance sheet of the company.read more (Shareholders Equity)
Balance Sheet is based on fundamental accounting EquationsAccounting EquationsAccounting Equation is the primary accounting principle stating that a business's total assets are equivalent to the sum of its liabilities & owner’s capital. This is also known as the Balance Sheet Equation & it forms the basis of the double-entry accounting system. read more which is below-
Top 15 Balance Sheet Items List
In Balance Sheet, normally, Assets are shown on the left-hand side with decreasing order of their liquidity. That means Current Assets will come on the top, and then fixed Assets will be shown. Liabilities and equity are shown on the right-hand side. Liabilities are shown before equity and are in decreasing order of liquidityOrder Of LiquidityThe presentation of various assets in the balance sheet with the time it takes for each to be converted into cash is known as the order of liquidity. Cash is considered a most liquid asset, followed by cash equivalents, marketable securities, account receivables, inventories, non-current investments, loans and advances, fixed assets.read more. Shareholder’s equity is shown below liabilities. As shown in IBM’s Balance Sheet,
Below are the main components of the Balance Sheet:-
- Current AssetsCurrent AssetsCurrent assets refer to those short-term assets which can be efficiently utilized for business operations, sold for immediate cash or liquidated within a year. It comprises inventory, cash, cash equivalents, marketable securities, accounts receivable, etc.read more
- Fixed AssetsFixed AssetsFixed assets are assets that are held for the long term and are not expected to be converted into cash in a short period of time. Plant and machinery, land and buildings, furniture, computers, copyright, and vehicles are all examples.read more
- Current LiabilitiesCurrent LiabilitiesCurrent Liabilities are the payables which are likely to settled within twelve months of reporting. They're usually salaries payable, expense payable, short term loans etc.read more
- Long Term Liabilities
- Shareholders’ Equity
Current Assets
Assets are the resources which are cash or can be converted to cash by selling. Companies can acquire assets using cash; that’s why they are known as “Use of Cash.” Current Assets are assets that are expected to realize in cash or sold to customers in a given operating cycle or one year. In a typical balance sheet, Current Assets are put before Fixed Assets. Below are the major items in Current Assets-
#1 – Cash and Equivalents
Cash is the funds that are readily available for disbursements. Cash and equivalents are the most liquid assetLiquid AssetLiquid Assets are the business assets that can be converted into cash within a short period, such as cash, marketable securities, and money market instruments. They are recorded on the asset side of the company's balance sheet.read more. Cash equivalentsCash EquivalentsCash equivalents are highly liquid investments with a maturity period of three months or less that are available with no restrictions to be used for immediate need or use. These are short-term investments that are easy to sell in the public market..read more are assets which are having a maturity period of fewer than 90 days.
#2 – Marketable Securities
Marketable Securities are assets that can be converted into cash in the 1 year and are readily available. Marketable securities provide some amount of interest amount to the firm.
#3 – Account Receivables
The amount which is owed to the entity by its customers. If the amount is owed to parties other than customers, then it is known as Notes receivablesNotes ReceivablesNotes Receivable is a written promise that gives the entitlement to the lender or holder of notes to receive the principal amount along with the specified interest rate from the borrower at the future date.read more.
#4 – Inventories
Inventories are assets which a business owner and will sell in the future. The company is expected to sell its inventory in the near future. That’s why it is put under Current Assets.
#5 – Prepaid Expense
The prepaid expense consists of the expense that the company has already paid, but until now, services for that payment has not been received. The company is expected to get the service in the near future. Examples of prepaid expenses can be advancedExamples Of Prepaid Expenses Can Be AdvancedPrepaid expense examples will provide an idea of the various payments made by the company in advance for those goods or services which will be procured in future. Some of these include prepaid rent, advance salary and prepaid insurance.read more insurance policy payment or advance salary to the workers of the company.
In IBM, below are the items under Current Assets:
Fixed Assets
Assets such as Property, Plant, and Equipment come under this category. These assets are having a life of more than 1 year. They are acquired so that they can generate cash flowGenerate Cash FlowCash Flow is the amount of cash or cash equivalent generated & consumed by a Company over a given period. It proves to be a prerequisite for analyzing the business’s strength, profitability, & scope for betterment. read more for many years in the future. Since the cash flow from these assets comes in future years, so they are capitalized for their useful life instead of making expenses at the time of purchase.
Fixed AssetsFixed AssetsFixed assets are assets that are held for the long term and are not expected to be converted into cash in a short period of time. Plant and machinery, land and buildings, furniture, computers, copyright, and vehicles are all examples.read more can be broadly classified into the following:
#6 – Property, Plant, and Equipment
These are the assets that are tangible in nature and relatively long-lived. It is includes Buildings, land, hardware’s, Computers, etc.
#7 – Intangible Assets
Intangible Assets are assets that cannot be seen or touched physically. An Example of the intangible asset is the firm’s intellectual property, such as a patent or any software. The cost of individual assets is also amortized over the years.
Current Liabilities
Current Liabilities is an obligation for the firm, which must be paid in a given accounting periodAccounting PeriodAccounting Period refers to the period in which all financial transactions are recorded and financial statements are prepared. This might be quarterly, semi-annually, or annually, depending on the period for which you want to create the financial statements to be presented to investors so that they can track and compare the company's overall performance.read more or usually in 1 year.
#8 – Account Payable
Accounts Payable is an operating liability which the company needs to pay to its supplier for the goods and services received. It needs to be payable for the given period or in a year.
#9 – Unearned Revenue
If the revenue has been generated and still services/goods need to be delivered, then it is accounted for under unearned revenue.
#10 – Short Term Debt
Debt whose maturity is less than 1 year comes under this category.
#11 – Current Portion of Long-term Debt
When companies take long term loans such as bonds, then they will have to pay interest or coupon payment for that loan each year. That amount which needs to be paid in a year will come under Current Liabilities.
#12 – Other Accrued Expenses and Liabilities
It could include money owed to employees etc.
Long term Liabilities
Long term liabilitiesLong Term LiabilitiesLong Term Liabilities, also known as Non-Current Liabilities, refer to a Company’s financial obligations that are due for over a year (from its operating cycle or the Balance Sheet Date). read more are the liabilities that the firm owned and are not expected to pay under one year.
#13 – Long Term Debt
Long term liabilities include Long term debt and bonds issued by companies. Long term debt can be taken from many sources such as banks and will have a different kind of interest and repayment structure. Bonds are the longer-term debt such as 30 years in which firm issues the bond to lenders and then make coupon payment each period as stated in bond structure. At the time of maturity, lenders get the last coupon payment and get a face amount of bond.
Shareholder’s Equity
Shareholder’s Equity is the difference between the Firm’s Assets and liabilities. It is a residual value to its shareholders. Shareholders’ Equity mainly consists of Share Capital and Retained Earnings.
#14 – Paid-in Capital
Paid-in capital is the value of shares that the company has made by issuing shares to its shareholders. Shares can be of 2 types Common Stock and Preferred Stock. Preferred Stockholders have preferential rights to assets for the company before common shareholders. Stocks have a very negligible par value. Their additional paid-in capital is the difference between the value at which the company sells to shareholders and par value.
#15 – Retained Earnings
Retained Earnings is the amount that comes from the company’s internal profit. From net income, the firm has 2 options either to pay the dividendDividendDividend is that portion of profit which is distributed to the shareholders of the company as the reward for their investment in the company and its distribution amount is decided by the board of the company and thereafter approved by the shareholders of the company.read more or retain it to invest in some projects. Retained Earning is the difference between Net Income and dividends paid.
Final Thoughts
As an investor, one should understand the meaning of all the items of the balance sheet, and it is interconnected with the Income Statement and Cash Flow StatementCash Flow StatementStatement of Cash flow is a statement in financial accounting which reports the details about the cash generated and the cash outflow of the company during a particular accounting period under consideration from the different activities i.e., operating activities, investing activities and financing activities.read more. Balance Sheet is also most prone to accounting adjustment (or we can say that manipulation), so we should also read the footnotes carefully in company reports to find out how the numbers are put in the accounts.
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