A balance sheet is nothing but a representation of assets and liabilities of a company at a particular point of time. In India liabilities are shown on left side of the balance sheet and assets are shown on right side.
Liabilities are anything that a company owes. In normal course of business debt and obligations arise for a company because of involvement in lots of transactions and interaction with people and other business firms.
Liabilities can be classified into the following 2 categories.
Current Liabilities
Long term Liabilities
Current Liabilities
These are the obligations that a company needs to meet within 1 year. Accounts payable, short term loans taken from banks and financial institutions, Accrued debt, Advances taken etc are the current liabilities.
Long term Liabilities
As the name suggests it represents the debt of a company that it needs to repay in long term. Long Term debt either taken from banks or collected from public by issuing bonds and the share holders’ equity etc are the examples of long term debts.
Share holders’ equity is the funds contributed by the stakeholders and the retained earnings. It’s classified under liabilities because in case of bankruptcy/liquidation the company will need to pay the shareholders the amount remained after paying all other liabilities.
A point to be noted here is that the equity value shown under liability corresponds to the face value and doesn’t correspond to the market value of the security.
In a balance sheet the Value of Assets always equals the value of Liabilities.
ASSETS = LIABILITIES
Sathish Emmadi
Sathish Emmadi is a co-founder & editor at Lastbull.com. He is presently working in IT for one of the world’s top mutual fund companies. Handled multiple projects in BFSI (Banking,Financial Services and Insurance) domain. An Engineering Graduate from NITW.
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