Balance sheet

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A balance sheet is a one of the fundamental accounting statements. It provides a "snapshot" of a financial entity's assets, liabilities, and total equity at a fixed point in time. Less commonly, it is also referred to as a statement of financial position.[1]

Contents

Difference in Standards

Private Sector

Any meaningful analysis of a company's finances must include a review of its balance sheets for the current and past operating cycles. Because of the large amount of information that such a summary can provide, United States law requires that all publicly held and traded companies provide balance sheets at regular intervals (usually four times a year).

Public Sector

Unlike the heavily regulated companies in the private sector, the federal government is not required to publicize any balance sheets it creates internally. However, because some of the financial documents and other information (like current debt, operating expenses in the form of the perennial budget, etc) are a matter of public record, similar information can be gleaned from the federal records.[2]

State and local governments are also not required to publish this or many other financial statements, but as with the federal government, such information can still be obtained through more convoluted means. These bodies are, however, held by federal regulations to more stringent standards, something from which the federal government is exempt.[2]

Financial Analysis

Although the balance sheet is often accompanied by several other financial statements, there are several meaningful ratios (like the debt/equity, working capital, and asset/liabilities ratios) that can be gleaned from the balance sheet alone. In forensic and auditory accounting, the balance sheet is almost always the first statement examined. It is only meaningful, however, if a rigorous "cut-off" date is enforced. For example, if a balance sheet is meant to deal with the information from December 1, 2009, to December 31, 2009, no information about cash received, services rendered, or payments made after December 31, 2009 can be included on the balance sheet. This stringent restriction allows relevant comparisons to be made between financial periods and inconsistencies to be highlighted.

References

  1. Balance sheet definition
  2. 2.0 2.1 Where is the balance sheet?
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