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What is balance Sheet how balance sheet is made balance sheet explained very simply with a hypothetical example.
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Today in this video we are going to learn what a balance sheet is and discuss very briefly how it can be drafted.
A balance sheet is one of the three main financial statements. The other ones are Income Statement, AND a Cash Flow Statement which we will discuss later on. “A balance sheet also called the statement of financial position is a financial report that gives us a snapshot of a business’s assets, liabilities, and equity at a single point in time. A company prepares its balance sheet at the end of the year and they post this on their annual report.
A balance sheet gives us information about three things
1. Assets, means, how much the company has invested in assets or what is the current economic value of existing assets.
2. Liabilities, means, how much loan the company has taken.
3. Equity, means, how much of the owner’s money is invested in the assets or company.
Now why is it called a balance sheet
if you have watched my previous video of owners’ equity, we discussed a formula like this;
Assets – liabilities = Equity
This equation is the derivation of the original accounting equation which is;
(Assets = Liabilities + Equity) this equation is called the accounting
equation and it is the heart and soul of a balance sheet.
Balance sheet can be made by two methods horizontally or vertically
A horizontal balance sheet consists of two portions on the right-hand side there are assets and on the left-hand side there is Liabilities + Owners Equity.
And vertical balance sheet is divided vertically in two portions the first portion contains the assets and the second portion Liabilities + equity.
Now lets make a balance sheet on the right side we will write assets and divide it into two categories current and non-current assets as we know these are the items that current and non-current assets contains.
Cash
Accounts receivables
Inventories
Short-term investment
Land
Building
Plant & Equipment
Vehicles
On the other hand, we will write liabilities with its current and non-current categorization and also write below with it owner/shareholders’ equity
Accruals
Accounts Payables
Notes Payables
Long-term bonds
Shareholders’ equity
Retained earnings
Shareholders’ capital

We write the balances of each of the element and make sure they are equal on both sides and we have made a balance sheet.
Previous Videos Links:
What are Liabilities:    • What are Liabilities? | Basic Accounting T...  
What are Assets:    • What are Assets? | Basic Accounting Terms ...  
What Is Owners Equity:    • What Is Owners Equity? | Basic Accounting ...