BUSINESS1 - Balance Sheet

Balance Sheet

A balance sheet is a financial statement that shows the current financial position of an entity. The balance sheet provides information on a company’s resources (assets) and sources of capital (equity and liabilities/debt) at a given point in time.

A balance sheet contains all details regarding how much a company has and how much it owes to others, which can be used to calculate the company’s net worth.

Where to Find the Balance Sheet?

You can find a company’s balance sheet from its annual report. An annual report is a company's yearly report to shareholders, documenting its activities and finances of the previous financial year. It is a 300-400 page document containing all vital information about a company. It is the yearly official communication from the company. The annual report contains information regarding a company’s overall business outlook, industry outlook, financial statements, marketing content, and forward-looking statements.

Its purpose is to present three things:

Assets: what the business owns (cash, equipment, inventory).
Liabilities: what the business owes (loans, accounts payable).
Owner’s Equity: what belongs to the owner after debts are paid.

The Balance Sheet follows the basic equation:
Assets = Liabilities + Owner’s Equity

Parts of the Balance Sheet:

Assets: Current (cash, supplies, accounts receivable) and Non-current (land, buildings, equipment).
Liabilities: Current (due within a year, like accounts payable) and Long-term (loans payable, mortgages).
Owner’s Equity: The ending capital from the Statement of Changes in Owner’s Equity.

There are two ways to format it:

Report form: Listed vertically, one section after the other.

Account form: Side-by-side, assets on the left and liabilities plus equity on the right.

Real-Life Example
Think about your snack stand at school. On December 31:

You have ₱2,000 cash, ₱1,000 worth of snacks, and equipment worth ₱2,000. These are your Assets (₱5,000 total).
You owe your friend ₱1,500 for borrowed supplies. That is a Liability.
The rest, ₱3,500, is your Owner’s Equity.

Report Form (Vertical)

Account Form (Side-by-Side)

Equation check: Assets (₱5,000) = Liabilities (₱1,500) + Owner’s Equity (₱3,500)

Non-current Assets
These are things a business owns that last more than one year. They are not meant to be sold quickly. Instead, they are used to help the business operate over time.

Examples of Non-current Assets:

Land – property the business owns.
Building – office, shop, or store.
Equipment – machinery, computers, printers, ovens.
Furniture and Fixtures – tables, chairs, shelves.
Vehicles – delivery vans, motorcycles used for business.

Example

ABC Printing Shop
On December 31, the ABC Printing Shop has these balances:

Cash: ₱15,000
Accounts Receivable: ₱10,000 (customers still owe this)
Printing Equipment: ₱40,000
Accounts Payable: ₱12,000 (supplies purchased on credit)
Loan Payable: ₱20,000 (bank loan)
Owner’s Capital (from Statement of Changes in Owner’s Equity): ₱33,000

Equation check: Assets (₱65,000) = Liabilities (₱32,000) + Owner’s Equity (₱33,000)

Relationship of Income Statement, Statement of Changes in Owner’s Equity and Balance Sheet

1. Income Statement - Calculates Net Income.

2. Statement of Changes in Owner’s Equity - Uses Net Income to update Ending Capital/Retained Earnings.

3. Balance Sheet - Reports Ending Capital/Retained Earnings as part of Owner’s Equity.

Business Transactions for November

Business Name: Sir-O Photography

1. Beginning Capital: ₱40,000

2. Service Revenue from photography jobs: ₱60,000

3. Rent Expense for studio: ₱15,000

4. Salaries Expense for assistant: ₱20,000

5. Utilities Expense: ₱5,000

6. Withdrawals for personal use: ₱10,000

7. Additional Investment by owner: ₱5,000

8. Current Asset is ₱28,000

9. Accounts Receivable: ₱10,000

10. Supplies: ₱5,000

11. Camera Equipment: ₱40,000

12. Accounts Payable: ₱13,000

Check the equation: Assets (₱68,000) = Liabilities (₱13,000) + Equity (₱55,000)