A Glossary Of Balance Sheet Terms

This week, as part of our drive to spread awareness about essential bookkeeping and accounting terms so that you can comprehend and communicate your bookkeeping and accounting needs effectively, Centrosome Inc. has outlined a glossary of essential Balance Sheet Terms.

A Balance Sheet is a financial report that summarizes a company’s assets (what it owns), liabilities (what it owes) and owner or shareholder equity; at a given time.

Accounts receivable (AR): The amount of money owed by customers or clients to a business after goods or services have been delivered and/or used.

Accounts payable (AP): The amount of money a company owes creditors (suppliers, etc.) in return for goods and/or services they have delivered.

Accrued Expense: An expense that has been incurred but hasn’t yet been paid.

Assets (Current and Fixed) (FA, CA):

Current assets (CA) are those that will be converted to cash within one year. Typically, this could be cash, inventory or accounts receivable.

Fixed assets (FA) are long-term and will likely provide benefits to a company for more than one year, such as a real estate, land or major machinery.

Book Value (BV): As an asset is depreciated, it loses value. The book value shows the original value of an asset, less any accumulated depreciation.

Equity and owner’s equity (OE): In the most general sense, equity is assets minus liabilities. An owner’s equity is typically explained in terms of the percentage of stock a person has ownership interest in the company. The owners of the stock are known as shareholders.

Inventory: Inventory is a term used to classify the assets that a company has purchased to sell that remains unsold. As the items are unsold, the inventory account will go down.

Liabilities (current and long-term) (CL, LTL): A company’s debts or financial obligations incurred during business operations. Current liabilities (CL) are those debts that are payable within a year, such as a debt to suppliers. Long-term liabilities (LTL) are typically payable over a period of time greater than one year. An example of a long-term liability would be a multi-year mortgage for office space.

Click here for Part 2 of our Glossary Series.     |     Click here for Part 4 of our Glossary Series.

To help you better understand these terms as well as others, reach out to the experts at Centrosome Inc. We are a small business bookkeeping and accounting company, based out of Ottawa, ON, that services clients across Canada and the US. View our full list of services here, read customer reviews here, or get in touch with us here.