Does the balance sheet always balance?

Yes, a balance sheet should always balance. The name "balance sheet" is based on the fact that assets will equal liabilities and equity every time.

The assets on the balance sheet consist of things of value that the company owns or will receive in the future and which are measurable. Liabilities are what the company owes, such as taxes, payables, salaries and debt. The equity sections displays the company's retained earnings and the capital that has been contributed by shareholders.

The balance between assets, liability and equity makes sense when applied to a simpler example, such as buying a car for Rs 10,000. In this case, you might use a Rs 5,000 loan (debt), and Rs 5,000 cash (equity) to purchase it. Your assets are worth Rs 10,000 total, while your debt is Rs 5,000 and equity is Rs 5,000. In this simple example, assets equal debt plus equity.

The major reason that a balance sheet balances is the accounting principle of double entry. This accounting system records all transactions in at least two different accounts, and therefore also acts as a check to make sure the entries are consistent. Building on the previous example, suppose you decided to sell your car for Rs 10,000. In this case, your asset account will decrease by Rs 10,000 while your cash account, or account receivable, will increase by Rs 10,000 so that everything continues to balance. (This is a very simple example. If you wish to learn more, check out Reading The Balance Sheet and Breaking Down The Balance Sheet.)

If the balance sheet you're working on does not balance, this should be a red flag that there is likely a problem with one or more entries. Even a small discrepancy can occur as a result of several errors that offset each other.

By: Investopeadia

Balance Sheet - Liabilties

Liabilities Side of Balance Sheet

Liabilities are written in left side of company’s balance sheet which includes.

Share Capital

Share capital of company, includes  to show authorized capital, subscribed capital, called up capital and paid up capital. For calculating paid up capital, we will deduct calls unpaid and add original paid up amount offorfeited shares.

Reserves and Surplus

Following reserves will be shown in liabilities side of balance sheet of company.

Capital reserves

Share premium account 

Other reserves

Surplus balance in profit and loss account after providing dividend, bonus or reserves.

Sinking fund

Secured Loan

If any loan is taken by company after keeping any asset as security, then it will be shown in secured loan head. Its detail is given below.

Debentures

Loan and advances from subsidiaries

Other loan and advances

Interest payable on secured loan

Unsecured loan

Following will be the unsecured loan.

Fixed deposits of public

Short term loans and advances 

Other loans

Current Liabilities and Provisions

All liabilities which is payable within one year, will be included in current liabilities head. 

Current Liabilities

Acceptance or bill payable

Sundry creditors

Interest payable other than on loan

Outstanding expenditures

Provisions

Provisions for taxations

Proposed dividend

Provision for provident fund

Provision for insurance, pension and other staff benefit schemes

Other provisions

Contingent liabilities 

These types of liabilities will not be shown in balance sheet. But a simple footnote is made for its detail. Following may be the contingent liabilities of company.

Claims against the company not acknowledge as debts

Uncalled liability on shares paid

Areas of fixed cumulative dividends

Any other contingent liability of company

Balance Sheet - Assets Side

Now we learn that balance sheet has two side i.e. Assets and Liabilities. Lets look at the component of assets side of Balance sheet.

1. Non-current assets:

Non-current assets, are those assets that are not turned into cash easily, expected to be turned into cash within a year and/or have a life-span of over a year. They can refer to tangible assets such as machinery, computers, buildings and land.

Non-current assets also can be intangible assets, such as goodwill, patents or copyright. While these assets are not physical in nature, they are often the resources that can make or break a company - the value of a brand name, for instance, should not be underestimated.

Non current assets are subject to Depreciation / Amortization which is calculated and deducted from most of these assets, which represents the economic cost of the asset over its useful life.

2. Investment: 

Now a day investments are considered as  non current assets. Investment are sum total of non current investment and investment made in group/sister concern.

3. Current assets:

Current assets are those assets which have a life span of one year or less, meaning they can be converted in to cash with in one year or one operating cycle whichever is higher. 

Current assets Includes: 

cash and cash equivalents, accounts receivable and inventory. Cash, the most fundamental of current assets, also includes non-restricted bank accounts.

Cash equivalents are very safe assets that can be are readily converted into cash such as  Treasuries notes. Accounts receivable consists of the short-term obligations owed to the company by its clients/customers. Companies often sell products or services to customers on credit, which then are held in this account until they are paid off by the clients.

Inventory represents the raw materials, work-in-progress goods and the company's finished goods. Depending on the company, the exact makeup of the inventory account will differ. For example, a manufacturing firm will carry a large amount of raw materials, while a retail firm caries none. The makeup of a retailers inventory typically consists of goods purchased from manufacturers and wholesalers.

What is Balance Sheet

A balance sheet, also known as a "statement of financial position," reveals a company's assets, liabilities and owners' equity (net worth). The balance sheet, together with the income statement and cash flow statement, make up of any company's financial statements.

The balance sheet is divided into two parts that, based on the following equation, must equal each other, or balance each other out. The main formula behind balance sheets is:

Assets = Liabilities + Shareholders' Equity

This means that assets, or the means used to operate the company, are balanced by a company's financial obligations, along with the equity investment brought into the company and its retained earnings.

Assets are what a company uses to operate its business, while its liabilities and equity are two sources that support these assets. Owners' equity, referred to as shareholders' equity in a publicly traded company, is the amount of money initially invested into the company plus any retained earnings and it represents a source of funding for the business.

It is important to note that a balance sheet is a snapshot of the company's financial position at a single point in time. - INVESTOPEDIA

What is Financial Analysis?

The process of evaluating businesses, projects, budgets and other finance-related entities to determine their suitability for investment. Typically, financial analysis is used to analyze whether an entity is stable, solvent, liquid, or profitable enough to be invested in. When looking at a specific company, the financial analyst will often focus on the income statement, balance sheet, and cash flow statement. In addition, one key area of financial analysis involves extrapolating the company's past performance into an estimate of the company's future performance. - 

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