Financial Plan - Balance Sheet

On of my readers reminded me that I am missing one of the key components of the Financial Plan i.e. The Balance Sheet. This report is a snapshot in time of company's finances. Although it is a snapshot, it is a very important statement, because it tell you about Assets, Liabilities and Equity of the company. It not only provides you a list of assets, it also tells you which assets are financed by debt or by equity. Let us quickly define few terms here:

Asset: Asset is something that company owns for its economic value.Current Assets are assets that can be converted to cash within a year. There are various types of assets like Intangible, tangible, marquee and alternate. I will define two of the most commonly used ones:
* Intangible Asset, that is not physical in nature. Examples are goodwill, patents, copyrights and intellectual property
* Tangible Asset, that is physical in nature. Cash, land, building and machinery are prime examples of Tangible Assets.

Liability: Liability is an obligation or legal debt as a result of accrual accounting. A liability can be accounts payable, loans, accrued expenses, mortgages. Liabilities can be either current, which are debts payable within a year, or long term, which are debts payable over longer period of time.

Equity: In Balance sheet terms, equity is defined as the contribution value of stockholders and the retained earnings or losses.

The Balance sheet report has two sides viz. Left hand side or Assets and right hand side or Liabilities and Equity.The name "Balance sheet" comes from the fact that Left hand side balances with Right hand side, or in other words Assets = Liabilities + Equity.

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