A Balance Statement is a financial statement showing assets, liabilities, and net worth at a specific time. Under generally accepted accounting principles, GAAP, the following rules apply to the creation of Balance Sheets. Assets are to be defined as items of value, both tangible and intangible, that a company owns or controls. Liabilities are debts owed by an organization. Equity is a residual account. Equity equals assets minus liabilities.
Current assets are assets that will become cash in the ordinary course of business within one year. Current liabilities are those debts or obligations that are scheduled to mature and become due in the next twelve months. Current assets are listed on the balance sheet in order of their liquidity. In this context, liquidity refers to the speed with which current assets are converted into cash. Listed below current assets are fixed assets, which are sometimes referred to as property, plant and equipment. Fixed assets are normally carried at their acquisition cost minus accumulated depreciation under GAAP rules. The exception is land or property. Property is not to be depreciated. Under the conservatism principle, the value of assets on the balance sheet is often lower than the market value of the assets. This is because companies are not permitted to mark up the value of assets on the balance sheet. For example, if a company owns property and its value increases rather than decreases over time, the increase in value may not be recorded or reflected on the company's balance sheet. Non-current liabilities are debts or obligations that are not expected to become due within the next twelve months. The equity section of the balance sheet is not a single figure representing the assets minus liabilities.
There are various entries that can appear under GAAP in the equity section of the Balance Sheet including Stock at par value, Additional paid in capital, and Retained earnings. Ret...