The Balance Sheet

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From the course by Indian School of Business

Accounting and Finance for IT professionals

87 ratings

Indian School of Business

Accounting and Finance for IT professionals

87 ratings

Course 3 of 6 in the Specialization Business Technology Management

This course presents an introduction to the basics of financial accounting and finance for IT professionals. The first part of the course will focus on understanding the most important financial statements, namely, the balance sheet, the income statement, and the statement of cash flows. We will then focus on how we can understand the financial health and performance of the company by examining a number of important financial ratios that are derived from the financial statements of the company. The second part of the course will focus on the basics of finance. This includes the concept of time value of money, discounting cash flows, and capital budgeting. The course will also introduce the idea of real options, how they affect a project’s NPV, and their impact of the decision to accept/reject a project. Lectures on concepts will be supplemented with numerical examples.

From the lesson

Basics of Financial Statements

This module provides a brief introduction to financial statements and various common filings. These are the most important sources for obtaining information regarding a company's performance. Most strategies are indeed based on financial statements. After completing this module you will be able to get the important details from the balance sheets.

Introduction and Courser Overview2:31

Business Organizations4:57

Role of Financial Manager4:20

Introduction to Accounting5:08

The Balance Sheet3:12

Liabilities4:45

Shareholders' Equity4:30

Income Statement4:20

Statement of Cash Flows4:02

Cash Flows from Operations9:19

Cash Flows from Investments and Financing6:20

Meet the Instructors

Ramabhadran Thirumalai
Assistant Professor
Indian School of Business

[MUSIC]

Last time we introduced the idea of accounting and

the three types of accounting.

In this video, we will talk about the balance sheet and

define it's three main parts.

We will also briefly discuss why the balance sheet is called so.

The first financial statement, we will look at is called the balance sheet.

It captures the financial position of a company as of for

particular date either the end of a quarter or end of a year.

It comes of three parts assets, liabilities, and shareholder's equity.

These parts show what the company owns, what it owes and

how much shareholders have invested in the company.

Assets represent the resources owned by a company and are used to generate

future economic benefits in the form of either higher cash inflows or

lower cash outflows.

Examples of assets are cash and equivalents, inventory, property,

plant and equipment, and intangible assets like patents and trademarks.

Assets are further classified into current and non-current assets.

Current assets are those assets that are expected to be converted to cash.

Sold or consumed within the next one year.

Any asset that is expected to be converted to cash, sold or

consumed after one year, is categorized as a non-current asset.

Liabilities represent the company's economic obligations to outsiders.

These outsiders have claims against the company's assets.

Examples of liabilities are accounts payable, short-term borrowing, and

long-term debt.

Similar to assets, liabilities are also classified into current and

non-current liabilities.

Current liabilities are those that are expected to be paid within one year,

while any expected to be paid after one year is a non-current liability.

The last part of a balance sheet is the shareholder's equity.

This represents the company owners' claims on the company's total assets.

It consists of owners' investment in the company

as well as aggregate undistributed profits called retained earnings.

The balance sheet get its name as it has to balance sold at all times,

that is assets must equal liabilities plus shareholder's equity.

Assets represent how the company uses its resources but it's liabilities and

shareholder's equity represent where the company gets its resources from.

These must equal each other at all times.

One of the important things to remember about the balance sheet is that

all items are recorded at historical cost.

They are never updated to current market values or prices.

In a balance sheet, assets typically appear on the left side or at the top.

And liabilities and shareholders equity appear on the right side or at the bottom.

However, this may vary from country to country,

depending on local accounting roads.

In some countries the order may be reversed.

Next time, we will start looking at the balance sheet in greater detail,

starting with the assets side of the balance sheet.

[MUSIC]

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