{"id":1435,"date":"2023-03-01T10:05:11","date_gmt":"2023-03-01T04:35:11","guid":{"rendered":"https:\/\/rzplearn.com\/?p=1435"},"modified":"2024-10-15T15:18:35","modified_gmt":"2024-10-15T09:48:35","slug":"balance-sheet","status":"publish","type":"post","link":"https:\/\/razorpay.com\/learn\/business-banking\/balance-sheet\/","title":{"rendered":"Balance Sheet: Meaning, Components and Format"},"content":{"rendered":"<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_80 counter-hierarchy ez-toc-counter ez-toc-transparent ez-toc-container-direction\">\n<p class=\"ez-toc-title\" style=\"cursor:inherit\">Table of Contents<\/p>\n<label for=\"ez-toc-cssicon-toggle-item-69e8e43e27545\" class=\"ez-toc-cssicon-toggle-label\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/label><input type=\"checkbox\"  id=\"ez-toc-cssicon-toggle-item-69e8e43e27545\"  aria-label=\"Toggle\" \/><nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/razorpay.com\/learn\/business-banking\/balance-sheet\/#What-is-a-Balance-Sheet\" >What is a Balance Sheet?\u00a0<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/razorpay.com\/learn\/business-banking\/balance-sheet\/#How-Balance-Sheets-Work\" >How Balance Sheets Work<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/razorpay.com\/learn\/business-banking\/balance-sheet\/#Preparing-a-Balance-Sheet\" >Preparing a Balance Sheet<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/razorpay.com\/learn\/business-banking\/balance-sheet\/#Video-Explanation-of-Balance-Sheets\" >Video Explanation of Balance Sheets<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/razorpay.com\/learn\/business-banking\/balance-sheet\/#Components-of-a-Balance-Sheet\" >Components of a Balance Sheet<\/a><ul class='ez-toc-list-level-3' ><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/razorpay.com\/learn\/business-banking\/balance-sheet\/#Assets\" >Assets<\/a><ul class='ez-toc-list-level-4' ><li class='ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-7\" href=\"https:\/\/razorpay.com\/learn\/business-banking\/balance-sheet\/#Current-Assets\" >Current Assets<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-8\" href=\"https:\/\/razorpay.com\/learn\/business-banking\/balance-sheet\/#Non-current-Assets\" >Non-current Assets<\/a><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-9\" href=\"https:\/\/razorpay.com\/learn\/business-banking\/balance-sheet\/#Liabilities\" >Liabilities<\/a><ul class='ez-toc-list-level-4' ><li class='ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-10\" href=\"https:\/\/razorpay.com\/learn\/business-banking\/balance-sheet\/#Current-Liabilities\" >Current Liabilities<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-11\" href=\"https:\/\/razorpay.com\/learn\/business-banking\/balance-sheet\/#Non-Current-or-Long-Term-Liabilities\" >Non-Current or Long Term Liabilities<\/a><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-12\" href=\"https:\/\/razorpay.com\/learn\/business-banking\/balance-sheet\/#Shareholder-Capital\" >Shareholder Capital<\/a><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-13\" href=\"https:\/\/razorpay.com\/learn\/business-banking\/balance-sheet\/#Format-of-Balance-Sheet\" >Format of Balance Sheet<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-14\" href=\"https:\/\/razorpay.com\/learn\/business-banking\/balance-sheet\/#Importance-of-Balance-Sheet\" >Importance of Balance Sheet<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-15\" href=\"https:\/\/razorpay.com\/learn\/business-banking\/balance-sheet\/#Limitations-of-Balance-Sheet\" >Limitations of Balance Sheet<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-16\" href=\"https:\/\/razorpay.com\/learn\/business-banking\/balance-sheet\/#Small-Business-Balance-Sheet\" >Small Business Balance Sheet<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-17\" href=\"https:\/\/razorpay.com\/learn\/business-banking\/balance-sheet\/#Glossary\" >Glossary<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-18\" href=\"https:\/\/razorpay.com\/learn\/business-banking\/balance-sheet\/#FAQs\" >FAQs<\/a><\/li><\/ul><\/nav><\/div>\n<h2><span class=\"ez-toc-section\" id=\"What-is-a-Balance-Sheet\"><\/span><strong>What is a Balance Sheet?\u00a0<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>A balance sheet is one of the final financial statements prepared by a business. It includes important information about the business&#8217;s assets, liabilities, and capital.<\/p>\n<p>Balance sheets help the founder and finance team of a business understand the business&#8217;s performance over a period of time.<\/p>\n<p>It also helps in the creation of certain accounting ratios, which give an in-depth understanding of the various dimensions of the business, like debt and receivables.<\/p>\n<h2><span class=\"ez-toc-section\" id=\"How-Balance-Sheets-Work\"><\/span>How Balance Sheets Work<span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>A balance sheet is divided into three overall categories:<\/p>\n<ol>\n<li><strong>Assets<\/strong><\/li>\n<li><strong>Liabilities<\/strong><\/li>\n<li><strong>Shareholder&#8217;s Equity<\/strong><\/li>\n<\/ol>\n<p>These three categories are arranged in the balance sheet as such:<\/p>\n<p><img decoding=\"async\" class=\"aligncenter wp-image-7846 size-large\" src=\"https:\/\/d6xcmfyh68wv8.cloudfront.net\/learn-content\/uploads\/2023\/03\/balance-sheet-infographic-905x1024.png\" alt=\"balance sheet infographic\" width=\"905\" height=\"1024\" srcset=\"https:\/\/d6xcmfyh68wv8.cloudfront.net\/learn-content\/uploads\/2023\/03\/balance-sheet-infographic-905x1024.png 905w, https:\/\/d6xcmfyh68wv8.cloudfront.net\/learn-content\/uploads\/2023\/03\/balance-sheet-infographic-265x300.png 265w, https:\/\/d6xcmfyh68wv8.cloudfront.net\/learn-content\/uploads\/2023\/03\/balance-sheet-infographic-1357x1536.png 1357w, https:\/\/d6xcmfyh68wv8.cloudfront.net\/learn-content\/uploads\/2023\/03\/balance-sheet-infographic.png 1397w\" sizes=\"(max-width: 905px) 100vw, 905px\" \/>Each category has a number of line items under it &#8211; each item holds a certain value that the company either owns or owes.<\/p>\n<p>The Balance Sheet, like all other financial statements, follows the double entry system of accounting, where every transaction has two equal and opposite effects.<\/p>\n<p><strong>Read more: <a href=\"https:\/\/razorpay.com\/blog\/business-banking\/double-entry-system\/\">Double Entry System of Accounting<\/a><\/strong><\/p>\n<p>This means that every Balance Sheet adheres to the accounting equation:<\/p>\n<p><img decoding=\"async\" class=\"wp-image-8594 size-full aligncenter\" src=\"https:\/\/d6xcmfyh68wv8.cloudfront.net\/learn-content\/uploads\/2023\/03\/Balance-sheet-1.png\" alt=\"accounting equation for balance sheet\" width=\"2204\" height=\"1256\" srcset=\"https:\/\/d6xcmfyh68wv8.cloudfront.net\/learn-content\/uploads\/2023\/03\/Balance-sheet-1.png 2204w, https:\/\/d6xcmfyh68wv8.cloudfront.net\/learn-content\/uploads\/2023\/03\/Balance-sheet-1-300x171.png 300w, https:\/\/d6xcmfyh68wv8.cloudfront.net\/learn-content\/uploads\/2023\/03\/Balance-sheet-1-1024x584.png 1024w, https:\/\/d6xcmfyh68wv8.cloudfront.net\/learn-content\/uploads\/2023\/03\/Balance-sheet-1-1536x875.png 1536w, https:\/\/d6xcmfyh68wv8.cloudfront.net\/learn-content\/uploads\/2023\/03\/Balance-sheet-1-2048x1167.png 2048w\" sizes=\"(max-width: 2204px) 100vw, 2204px\" \/>This formula means that every single transaction that a business makes will have an equal effect on both sides of the equation.<\/p>\n<p>This is because when a business buys something (asset) it pays for it by either deducting an asset (cash) or increasing a liability (credit). In this way, the accounting equation always remains balanced.<\/p>\n<p><em>Note: A balance sheet is a snapshot of the business&#8217;s position at a particular point in time, and not over a period of time. This is why a balance sheet should always be used compared to previous periods.<\/em><\/p>\n<h2><span class=\"ez-toc-section\" id=\"Preparing-a-Balance-Sheet\"><\/span>Preparing a Balance Sheet<span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>For bigger businesses and publicly held companies, the balance sheet is typically prepared by a Chartered Accountant or the company&#8217;s finance team.<\/p>\n<p>In the case of smaller startups or newly established small businesses, the balance sheet and all other financial statements are typically prepared by the founder or a company bookkeeper.<\/p>\n<p>If the founder takes it upon herself to prepare the balance sheet, it might be a bit of a challenge if she does not have accounting knowledge.<\/p>\n<p>Here is a template for Balance Sheet that you can download and edit as per your requirements!<\/p>\n<p style=\"text-align: center;\"><a style=\"border-radius: 3px; background: #528FF0; padding: 15px; font-weight: 600; cursor: pointer; text-decoration: none; color: white;\" href=\"https:\/\/d6xcmfyh68wv8.cloudfront.net\/learn-content\/uploads\/2023\/03\/Balance-Sheet-QX-202X.xlsx\" target=\"_blank\" rel=\"noopener\" data-schema-attribute=\"\">Download FREE Balance Sheet Template!<\/a><\/p>\n<p>&nbsp;<\/p>\n<h2><span class=\"ez-toc-section\" id=\"Video-Explanation-of-Balance-Sheets\"><\/span>Video Explanation of Balance Sheets<span class=\"ez-toc-section-end\"><\/span><\/h2>\n<div style=\"width: 770px;\" class=\"wp-video\"><!--[if lt IE 9]><script>document.createElement('video');<\/script><![endif]-->\n<video class=\"wp-video-shortcode\" id=\"video-1435-1\" width=\"770\" height=\"433\" poster=\"https:\/\/d6xcmfyh68wv8.cloudfront.net\/learn-content\/uploads\/2023\/03\/Screenshot-2023-03-01-at-11.44.37-AM.png\" preload=\"metadata\" controls=\"controls\"><source type=\"video\/mp4\" src=\"https:\/\/d6xcmfyh68wv8.cloudfront.net\/learn-content\/uploads\/2023\/03\/Increase-Business.mp4?_=1\" \/><a href=\"https:\/\/d6xcmfyh68wv8.cloudfront.net\/learn-content\/uploads\/2023\/03\/Increase-Business.mp4\" target=\"_blank\" rel=\"noopener\">https:\/\/d6xcmfyh68wv8.cloudfront.net\/learn-content\/uploads\/2023\/03\/Increase-Business.mp4<\/a><\/video><\/div>\n<h2><span class=\"ez-toc-section\" id=\"Components-of-a-Balance-Sheet\"><\/span>Components of a Balance Sheet<span class=\"ez-toc-section-end\"><\/span><\/h2>\n<h3><span class=\"ez-toc-section\" id=\"Assets\"><\/span>Assets<span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>Everything that a business <strong>owns<\/strong> is classified as an asset. These can include cash, machines, computers, desks, chairs; even things we cannot touch, like patents and trademarks.<\/p>\n<p>Assets in the balance sheet are divided into two categories: current assets and non-current assets.<\/p>\n<h4><span class=\"ez-toc-section\" id=\"Current-Assets\"><\/span>Current Assets<span class=\"ez-toc-section-end\"><\/span><\/h4>\n<p>Current Assets are those assets that are very easily liquidated, or converted to cash. Assets are organized under this category in order of most liquid to least liquid. They include:<\/p>\n<h5><strong>Cash and cash equivalents<\/strong><\/h5>\n<p>These are the most liquid assets, which already exist as cash.<\/p>\n<p>Cash equivalents include:<\/p>\n<ul>\n<li>Hard currency<\/li>\n<li>Short-term certificates of deposit<\/li>\n<li>Treasury bills<\/li>\n<\/ul>\n<p>They are called &#8220;cash equivalents&#8221; because they can be converted into cash in a very short time, so they might as well be considered equal to cash.<\/p>\n<p>Businesses with healthy amounts of cash and cash equivalents will be able to meet their short-term debt obligations with ease.<\/p>\n<blockquote><p><em>&#8220;Short-term debt obligation&#8221; here means debt that businesses have to pay off in a short period of time. <\/em><em>For example, <a href=\"https:\/\/razorpay.com\/blog\/what-is-accounts-payable\/\">accounts payable.<\/a><\/em><\/p><\/blockquote>\n<h5><span style=\"color: #111111; font-family: Roboto, Arial, sans-serif; font-size: 1.21em; font-weight: bold;\">Inventories<\/span><\/h5>\n<p>Inventory refers to the stock of goods that a business has at any point in time. This is included under current assets since it is expected to be sold and converted into cash within the coming year.<\/p>\n<h5><strong>Marketable<\/strong> Securities<\/h5>\n<p>These are liquid financial instruments that can be easily and quickly converted into cash. Their maturity is usually less than a year, which is why marketable securities are considered to be highly liquid.<\/p>\n<p>Instead of letting liquid cash sit idle in a bank account, businesses might choose to invest this cash into short-term liquid securities. These securities earn a small amount of interest and are very easily converted back into liquid cash.<\/p>\n<h5>Accounts Receivable or Trade Receivables<\/h5>\n<p><a href=\"https:\/\/razorpay.com\/learn\/what-is-accounts-receivable-definition-process\/\">Accounts Receivable<\/a>, or Receivables, is the amount that the customers owe to a business.<\/p>\n<p>Businesses will provide customers with an invoice, expecting to collect the amount owed within a certain period of time, which may be days or a month at most.<\/p>\n<p>Since this amount is also likely to convert into cash within a very short time, it is considered to be liquid.<\/p>\n<h4><span class=\"ez-toc-section\" id=\"Non-current-Assets\"><\/span>Non-current Assets<span class=\"ez-toc-section-end\"><\/span><\/h4>\n<p>These assets are those which cannot, or will not be liquidated &#8211; or converted into cash within the next year. They include:<\/p>\n<h5>Fixed Assets<\/h5>\n<p>Assets like property, equipment, and land are those that the business purchases without the expectation of selling off within a year.<\/p>\n<p>These fixed assets are capital-intensive (which means they are expensive) and are generally used by the business in revenue-generating operations.<\/p>\n<p><em>Note: Some fixed assets lose value over time and use. This loss in value is called depreciation and is subtracted from the value of the fixed asset.<\/em><\/p>\n<p><strong>Read more: <a href=\"https:\/\/razorpay.com\/blog\/business-banking\/depreciation\/\">Depreciation<\/a><\/strong><\/p>\n<h5><span style=\"color: #111111; font-family: Roboto, Arial, sans-serif; font-size: 1.21em; font-weight: bold;\">Intangible Fixed Assets\u00a0<\/span><\/h5>\n<p>These are assets that cannot be touched, i.e., non-physical assets which are still of high value to the company. Some examples are patents, goodwill, and trademarks.<\/p>\n<p>While tangible assets lose value in the form of depreciation, intangible assets losing value is called amortization.<\/p>\n<p><strong>Read more: <a href=\"https:\/\/razorpay.com\/blog\/business-banking\/amortization\/\">Amortization<\/a><\/strong><\/p>\n<h3><span class=\"ez-toc-section\" id=\"Liabilities\"><\/span>Liabilities<span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>Liability is any value that the business owes to outside parties. These can include loans, payables, and others.<\/p>\n<p>Like assets, liabilities are also divided into current liabilities and non-current liabilities.<\/p>\n<h4><span class=\"ez-toc-section\" id=\"Current-Liabilities\"><\/span>Current Liabilities<span class=\"ez-toc-section-end\"><\/span><\/h4>\n<p>A current liability is something that the business owes to its creditors within a short period of time. This &#8220;time&#8221; could be one year or within one cash conversion cycle.<\/p>\n<p>A cash conversion cycle or an operating cycle is the amount of time it takes for a business to convert its inventory into sales. A healthy business should be measuring this time in days.<\/p>\n<p>A few commonly seen current liabilities are:<\/p>\n<h5>Accounts Payable<\/h5>\n<p>This is the amount that the business owes to its suppliers. Sometimes, the business might purchase goods or services from outside vendors when it is not able to pay with cash at the time of purchase.<\/p>\n<p>In this case, the supplier will draw up an invoice against the sale, and the business will be liable to pay the supplier within a few days, or a month at most.<\/p>\n<h5>Commercial Papers<\/h5>\n<p>This is a kind of unsecured, short-term debt instrument used to finance other short-term liabilities like payroll and inventories. They typically mature within a month, and are for smaller denominations than regular bank loans.<\/p>\n<p>Some other current liabilities include:<\/p>\n<ul>\n<li>Current maturities of long-term debt<\/li>\n<li>Dividends payable<\/li>\n<li>Interest payable<\/li>\n<li>Income taxes owed within the next year<\/li>\n<\/ul>\n<h4><span class=\"ez-toc-section\" id=\"Non-Current-or-Long-Term-Liabilities\"><\/span>Non-Current or Long Term Liabilities<span class=\"ez-toc-section-end\"><\/span><\/h4>\n<p>Non-Current, Long Term, or Fixed Liabilities include debt that does not mature within the coming year. These can include:<\/p>\n<ul>\n<li>Long-term loans like any interest and principal on bank loans<\/li>\n<li>Deferred tax liability<\/li>\n<li>Pension Fund Liability<\/li>\n<\/ul>\n<p>If a business has a lot of liabilities, but very little cash and cash equivalent balance, it means that it will not be able to pay off its debts without taking on more debt.<\/p>\n<h3><span class=\"ez-toc-section\" id=\"Shareholder-Capital\"><\/span>Shareholder Capital<span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>This is the money that the owners have invested into the business. This is also the business&#8217;s net worth.<\/p>\n<p>Shareholder Equity is an important figure because it helps determine if business management is doing a good job at investing and spending the business&#8217;s capital.<\/p>\n<h2><span class=\"ez-toc-section\" id=\"Format-of-Balance-Sheet\"><\/span>Format of Balance Sheet<span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>There are many different ways a business can present its balance sheet. Regardless of the structure, all balance sheets have the same line items.<\/p>\n<p style=\"text-align: center;\"><strong>ABC Business<br \/>\nUnaudited Condensed Consolidated Balance Sheet as of 31st March 2022<\/strong><\/p>\n<p style=\"text-align: right;\"><span style=\"font-weight: 400;\">(\u20b9 in lakhs)<\/span><\/p>\n<table>\n<tbody>\n<tr>\n<td><span style=\"font-weight: 400;\">Particulars\u00a0<\/span><\/td>\n<td><span style=\"font-weight: 400;\">As of March 31st, 2022\u00a0<\/span><\/td>\n<td><span style=\"font-weight: 400;\">As of December 31st, 2022\u00a0<\/span><\/td>\n<\/tr>\n<tr>\n<td><strong>ASSETS<\/strong><\/td>\n<td><\/td>\n<td><\/td>\n<\/tr>\n<tr>\n<td><span style=\"text-decoration: underline;\"><span style=\"font-weight: 400;\">Current Assets<\/span><\/span><\/td>\n<td><\/td>\n<td><\/td>\n<\/tr>\n<tr>\n<td><span style=\"font-weight: 400;\">Cash &amp; Cash Equivalents<\/span><\/td>\n<td><\/td>\n<td><\/td>\n<\/tr>\n<tr>\n<td><span style=\"font-weight: 400;\">Trade Receivables<\/span><\/td>\n<td><\/td>\n<td><\/td>\n<\/tr>\n<tr>\n<td><span style=\"font-weight: 400;\">Inventory<\/span><\/td>\n<td><\/td>\n<td><\/td>\n<\/tr>\n<tr>\n<td><span style=\"font-weight: 400;\">Marketable Securities<\/span><\/td>\n<td><\/td>\n<td><\/td>\n<\/tr>\n<tr>\n<td><span style=\"text-decoration: underline;\"><span style=\"font-weight: 400;\">Non-current Assets<\/span><\/span><\/td>\n<td><\/td>\n<td><\/td>\n<\/tr>\n<tr>\n<td><span style=\"font-weight: 400;\">Property, Plant and Equipment\u00a0<\/span><\/td>\n<td><\/td>\n<td><\/td>\n<\/tr>\n<tr>\n<td><span style=\"font-weight: 400;\">Goodwill<\/span><\/td>\n<td><\/td>\n<td><\/td>\n<\/tr>\n<tr>\n<td><span style=\"font-weight: 400;\">Investments\u00a0<\/span><\/td>\n<td><\/td>\n<td><\/td>\n<\/tr>\n<tr>\n<td><strong>LIABILITIES<\/strong><\/td>\n<td><\/td>\n<td><\/td>\n<\/tr>\n<tr>\n<td><span style=\"text-decoration: underline;\"><span style=\"font-weight: 400;\">Current Liabilities<\/span><\/span><\/td>\n<td><\/td>\n<td><\/td>\n<\/tr>\n<tr>\n<td><span style=\"font-weight: 400;\">Trade Payables<\/span><\/td>\n<td><\/td>\n<td><\/td>\n<\/tr>\n<tr>\n<td><span style=\"font-weight: 400;\">Short-term debt<\/span><\/td>\n<td><\/td>\n<td><\/td>\n<\/tr>\n<tr>\n<td><span style=\"font-weight: 400;\">Borrowings<\/span><\/td>\n<td><\/td>\n<td><\/td>\n<\/tr>\n<tr>\n<td><span style=\"font-weight: 400;\">Deferred Tax Liability<\/span><\/td>\n<td><\/td>\n<td><\/td>\n<\/tr>\n<tr>\n<td><span style=\"text-decoration: underline;\"><span style=\"font-weight: 400;\">Non-current Liabilities<\/span><\/span><\/td>\n<td><\/td>\n<td><\/td>\n<\/tr>\n<tr>\n<td><span style=\"font-weight: 400;\">Loans<\/span><\/td>\n<td><\/td>\n<td><\/td>\n<\/tr>\n<tr>\n<td><span style=\"font-weight: 400;\">Lease liability<\/span><\/td>\n<td><\/td>\n<td><\/td>\n<\/tr>\n<tr>\n<td><span style=\"font-weight: 400;\">Shareholder Capital\u00a0<\/span><\/td>\n<td><\/td>\n<td><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<p>&nbsp;<\/p>\n<h2><span class=\"ez-toc-section\" id=\"Importance-of-Balance-Sheet\"><\/span>Importance of Balance Sheet<span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>A business with a strong balance sheet will find it easier to secure capital &#8211; investors and banks delve deep into the financials of a company, most specifically its balance sheet, before deciding to invest in the business.<\/p>\n<p>Lenders and investors assess the creditworthiness of a business in order to determine if the company is a valuable investment or not.<\/p>\n<p>Internal stakeholders of the company, like managers or executives can also use the Balance Sheet extensively to measure the financial health of the company.<\/p>\n<p><strong>Read more: <a href=\"https:\/\/razorpay.com\/blog\/business-banking\/accounting-ratios\/\">Accounting Ratios<\/a><\/strong><\/p>\n<p>Here are some important metrics that can be assessed from the balance sheet by both internal and external stakeholders.<\/p>\n<p><strong>Liquidity<\/strong><\/p>\n<p>This metric is used to measure how quickly a business is able to convert existing assets into hard cash. The higher a company&#8217;s liquidity, the more cash it has to use on an immediate basis.<\/p>\n<p>Typically, the liquidity of a company is measured using the quick ratio, or the liquidity ratio. This ratio is a measure of a company&#8217;s ability to pay off its current liabilities.<\/p>\n<p>On the other hand, if a company has very high liquidity, it could mean that the management is not putting liquid cash to good use. Liquid cash could be used to acquire other businesses or could be parked in high-return investments, instead of sitting idle.<\/p>\n<p><strong>Profitability<\/strong><\/p>\n<p>Profitability is a measure of a business&#8217;s ability to generate profits from its revenue. High profitability means that the business is able to balance revenue and expenses, to translate into profit.<\/p>\n<p>A company is profitable if its revenue exceeds its expenses. The main factors that affect profitability, therefore, are revenue, expenses, demand, competition and general economic conditions.<\/p>\n<p>Being able to keep expenses in check and maintain high profits even in times of economic downturn is an important measure of a business&#8217;s financial health.<\/p>\n<p><strong>Solvency\u00a0<\/strong><\/p>\n<p>Solvency is an important measure of financial health &#8211; it indicates that the company is able to meet its long term debt obligations. A good solvency metric means that the company expects to be able to manage operations into the future with no risk of dissolution or bankruptcy.<\/p>\n<p>Low solvency means that the business is at risk of not being able to pay back long-term loans and in extreme cases may have to declare bankruptcy.<\/p>\n<h2><span class=\"ez-toc-section\" id=\"Limitations-of-Balance-Sheet\"><\/span>Limitations of Balance Sheet<span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>A balance sheet is not a solve-all statement &#8211; it has certain limitations that stakeholders have to keep in mind when reading a Balance Sheet.<\/p>\n<p>One major limitation of a balance sheet is its staticity. A balance sheet shows the financial position of a business at a particular point in time, and not over a period of time. This means that the person reading the balance sheet only gets a very static view of the company&#8217;s financials.<\/p>\n<p>A balance sheet can only be read in context &#8211; we need the previous quarter&#8217;s values as well in order to better understand the current values.<\/p>\n<p>For example, a cash and cash equivalents value of Rs 50,00,000 this quarter would mean nothing if we didn&#8217;t have the context of the previous quarter. If we know that last quarter&#8217;s cash and cash equivalents stand at Rs 30,00,000, we can deduce that the company has increased its cash reserves over the last quarter.<\/p>\n<h2><span class=\"ez-toc-section\" id=\"Small-Business-Balance-Sheet\"><\/span>Small Business Balance Sheet<span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>Small business and startup founders typically find finances to be the hardest part of management. From vendor management to payroll, having to manage all the facets of business finance can be challenging for startup founders.<\/p>\n<p>Today, there are many solutions on the market for startup founders to simplify business finances &#8211; RazorpayX is one such solution.<\/p>\n<ul>\n<li>Automate <a href=\"https:\/\/razorpay.com\/blog\/what-is-invoice-management\/\">invoice management<\/a> with<a href=\"https:\/\/razorpay.com\/x\/vendor-payments\/\" rel=\"external noopener noreferrer\" data-wpel-link=\"external\">\u00a0Vendor Payments\u00a0<\/a><\/li>\n<li>Easily acquire foreign capital with RazorpayX\u2019s new\u00a0<a href=\"https:\/\/razorpay.com\/x\/forex\/home\" rel=\"external noopener noreferrer\" data-wpel-link=\"external\">Forex funding facility<\/a><\/li>\n<li>Integrate with accounting software to easily track every expense and income your business makes.<\/li>\n<\/ul>\n<div style=\"text-align: center;\"><\/div>\n<p style=\"text-align: center;\"><a style=\"border-radius: 3px; background: #528FF0; padding: 15px; font-weight: 600; cursor: pointer; text-decoration: none; color: white;\" href=\"https:\/\/razorpay.com\/x\/?r=blog_cta_business_banking_balance_sheets&amp;utm_source=blog&amp;utm_medium=cta\" target=\"_blank\" rel=\"noopener\" data-schema-attribute=\"\">Explore RazorpayX!<\/a><\/p>\n<h2><span class=\"ez-toc-section\" id=\"Glossary\"><\/span><strong>Glossary<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<ul>\n<li style=\"font-weight: 400;\"><b>Assets: <\/b><span style=\"font-weight: 400;\">Anything that a business owns is called an asset<\/span><\/li>\n<li style=\"font-weight: 400;\"><b>Non-current assets:\u00a0<\/b>Items owned by the company likely to stay with it for more than a year.<\/li>\n<li style=\"font-weight: 400;\"><b>Current assets:<\/b><span style=\"font-weight: 400;\"> Items owned by the company that are likely to be encashed within a year.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\"><b>Liabilities:<\/b><span style=\"font-weight: 400;\"> Anything that a business owes to someone is called a liability\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\"><b>Non-current liabilities:<\/b><span style=\"font-weight: 400;\"> Debts that the business has more than one year to repay<\/span><\/li>\n<li style=\"font-weight: 400;\"><b>Current liabilities:<\/b><span style=\"font-weight: 400;\"> Debts that the business has to clear within a year\u2019s time<\/span><\/li>\n<li style=\"font-weight: 400;\"><b>Total current assets: <\/b><span style=\"font-weight: 400;\">All current assets added together<\/span><\/li>\n<li style=\"font-weight: 400;\"><b>Net assets:<\/b><span style=\"font-weight: 400;\"> Assets minus liabilities<\/span><\/li>\n<li style=\"font-weight: 400;\"><b>Shareholder capital: <\/b><span style=\"font-weight: 400;\">The value of shareholders\u2019 funds invested into the company\u00a0<\/span><\/li>\n<\/ul>\n<h2><span class=\"ez-toc-section\" id=\"FAQs\"><\/span>FAQs<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\t\t\t<div id=\"rank-math-rich-snippet-wrapper\" class=\"\">\n\n\t\t\t\t\n\t\t\t<\/div>\n\t\t\n","protected":false},"excerpt":{"rendered":"<p>A balance sheet is a financial statement of a company. It includes assets, liabilities, equity capital, total debt etc. at a particular point in time.<\/p>\n","protected":false},"author":151156542,"featured_media":7563,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[3367,3437,1383],"tags":[3620,2907],"class_list":{"0":"post-1435","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-business-glossary","8":"category-banking","9":"category-business","10":"tag-accounting-for-founders","11":"tag-balance-sheet"},"_links":{"self":[{"href":"https:\/\/learn.razorpay.in\/learn\/wp-json\/wp\/v2\/posts\/1435","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/learn.razorpay.in\/learn\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/learn.razorpay.in\/learn\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/learn.razorpay.in\/learn\/wp-json\/wp\/v2\/users\/151156542"}],"replies":[{"embeddable":true,"href":"https:\/\/learn.razorpay.in\/learn\/wp-json\/wp\/v2\/comments?post=1435"}],"version-history":[{"count":19,"href":"https:\/\/learn.razorpay.in\/learn\/wp-json\/wp\/v2\/posts\/1435\/revisions"}],"predecessor-version":[{"id":14079,"href":"https:\/\/learn.razorpay.in\/learn\/wp-json\/wp\/v2\/posts\/1435\/revisions\/14079"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/learn.razorpay.in\/learn\/wp-json\/wp\/v2\/media\/7563"}],"wp:attachment":[{"href":"https:\/\/learn.razorpay.in\/learn\/wp-json\/wp\/v2\/media?parent=1435"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/learn.razorpay.in\/learn\/wp-json\/wp\/v2\/categories?post=1435"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/learn.razorpay.in\/learn\/wp-json\/wp\/v2\/tags?post=1435"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}