Balance Sheet I: Assets and Liabilities

Definition and Meaning of Balance Sheet

The term “balance sheet” can be defined as the statement that shows the presentation of summary of assets, liabilities and capital of a business in a well arranged form; so that the financial position may be clearly ascertained. Balance sheet is not an account but a mere statement showing the balances remaining in the capital, assets and liabilities ledgers.

Assets and Liabilities

A. Assets are:

1. something valuable that an entity owns, benefits from, or has use of, in generating income.

2. Something that an entity has acquired or purchased, and that has money value (its cost, book value, market value, or residual value). An asset can be

(i) something physical, such as cash, machinery, inventory, land and building,

(ii) an enforceable claim against others, such as accounts receivable,

(iii) right, such as copyright, patent, trademark, or

(iv) an assumption, such as goodwill.

Assets shown on their owner’s balance sheet are usually classified according to the ease with which they can be converted into cash.