B – Accounting Glossary
In formal bookkeeping and accounting, a balance sheet is a statement of the financial value (or “worth”) of a business or other organisation (or person) at a particular date, usually at the end of its “fiscal year,” as distinct from a profit and loss statement (or “P&L”), which records income and expenditures over some period. Therefore a balance sheet is often described as a “snapshot” of the company’s financial condition at that time. The balance sheet has two parts: assets on the left-hand (“debit”) side or at the top and liabilities on the right-hand (“credit”) side or at the bottom. The assets of the company — money (“in hand” or owed to it), investments (including securities and real estate), and other property — are equal to the claims for payments of the persons or organisations owed — the creditors, lenders, and shareholders. This standard format for balance sheets is derived from the principle of double-entry bookeeping.
In finance and economics, a bond or debenture is a debt instrument that obligates the issuer to pay to the bondholder the principal (the original amount of the loan) plus interest. Thus, a bond is essentially an I.O.U. (I owe you contract) issued by a private or governmental corporation. The corporation “borrows” the face amount of the bond from its buyer, pays interest on that debt while it is outstanding, and then “redeems” the bond by paying back the debt. A mortgage is a bond secured by real estate.
The book value of an asset or group of assets is the price at which they were originally acquired, in many cases equal to purchase price. Book value is therefore relevant insofar as it forms the basis of various calculations e.g. of nominal capital gains (current value divided by book value), of amortized value (book value adjusted for depreciation) and of several financial ratios (e.g. price to book value [P/BV]).