Understanding a company’s balance sheet becomes important when making a decision on whether to invest in the company’s stock. The balance sheet displays a company’s assets, liabilities and stockholder’s equity for a given period. The difference between loans payable and receivable is where they fall on the balance sheet, as one is a liability and the other an asset.
Assets and Liabilities
Assets represent anything a company owns that has value. This includes money that may be sitting in accounts in the form of “receivables,” cash on hand, equipment and inventory. Other items considered as assets include company computers, copy machines, owned real estate, vehicles and more. Liabilities, on the other hand, represent what a company owes, or has to pay out, such as monthly expenses or monthly payments on money it has borrowed.
Loans payable appear under liabilities on the balance sheet. A loan or note payable is an amount owed to a creditor for a line of credit or for capitalization of the business. Sometimes small businesses borrow money from the bank to start the business and then make payments to the bank to repay the loan. These types of payments are “loans payable.” Some banks offer lines of credit to established businesses to help with cash flow problems. These types of loans offer varying payment or interest amounts, depending upon the length of the loan.
If your business was in the business of loaning money to customers or clients, loan receivables would be those loan payments due the company. A bank is one example of the type of company that would show this asset account on its balance sheet. Any money not yet paid for which the company expects payment are “receivables,” whether it’s for loans due the company or payment for products or services rendered.
Companies use financial reports to provide information to outside creditors, investors, stockholders and those with interest in the company’s doings. For publicly traded companies, the United States Securities and Exchange Commission requires quarterly submittal of these reports on specific forms. The SEC makes these reports available for research on its “EDGAR” site. This allows investors to look at financial reports online (see Resource).