This glossary uses Visual Finance™ to bring financial terms to life. Each example shows data from the Round Number Company, a fictional business with simplified figures to make learning easier. For more details, visit 'How to Read Visual Finance'.
An organization reports its financial performance and position through the Balance Sheet, Income Statement, and Statement of Cash Flows.
The Balance Sheet is a summary of the Assets, Liabilities, and Equity for the business at a certain point in time - it gives a financial snapshot for the given moment.
In the annual report the Balance Sheet shows the state of the business at the end of the business year; it does not show how the business has changed over the year. Compare Balance Sheets for the current and previous periods to see the changes.
The Balance Sheet can be one of two formats: Total Asset or Net Asset.
Total Asset Balance Sheet (upper illustration)
North America uses a Total Asset Balance Sheet which shows the Assets (what you have in the business) and balances against where the funding for those Assets comes from:
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Balance Sheet Equation: Total Assets = Total Liabilities + Equity For a DIY Balance Sheet Calculator, go here. |
Net Asset Balance Sheet (lower illustration)
Elsewhere in the world, a Net Asset Balance Sheet may be used. It balances the ‘Net Assets’ (Total Assets less Liabilities) against the Equity. The Net Asset Balance Sheet has advantages for measuring management performance, and is prevalent outside North America.
Net Asset Balance Sheet Equation:Total Assets - Total Liabilities = Net Assets = EquityFor a DIY Balance Sheet Calculator, go here |
Any term which uses the phrase ‘net asset’ or ‘net assets’ must be examined closely. See discussion at Net Asset.
The above is our generic explanations of common corporate financial terminology. Actual meanings can vary widely from company to company; in order to have the correct internal definition you need to ask your Finance Department, "What do you mean by that?"
term list.