IT Financials Glossary

Balance sheet

Posted in Accounting by mgentle on August 26, 2010

Balance sheet: A snapshot of a company’s value at a specific point in time. It contains two parts, assets (cash, accounts receivable, equipment…) and liabilities (accounts payable and other debt). The difference between the two is the company’s net worth (also known as owner’s equity or shareholder’s equity).

Because IT is so capital-intensive (up to 50% of a company’s capital expenditure), it can form a significant part of the balance sheet.

An analogy would be one’s personal balance sheet, which would list one’s assets (car, savings, wife’s house and jewellery…) and liabilities (loans, dubious investment schemes, alimony payments to first wife …).

Note that the balance sheet does not tell us how the company is performing in terms of revenue and expenses each month – that is the role of the Income Statement or P&L (of which the analogy would be your monthly salary and living expenses).

One Response

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  1. Write off said, on April 7, 2011 at 01:33

    […] expenses have to be written off. In other words, the now worthless asset is removed from the balance sheet and recorded as an expense against the current period’s […]

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