A balance sheet is a financial statement that provides a snapshot of a company's financial health at a specific point in time. It lists:
Assets: Everything the company owns that has value, including cash, inventory, property, equipment, and accounts receivable (money owed to the company).
Liabilities: All debts and obligations the company owes, such as loans, accounts payable (money the company owes to suppliers), and other financial commitments.
Equity: Also known as shareholders' equity or owner's equity, this represents the residual interest in the assets of the entity after deducting liabilities. It includes funds contributed by the owners, retained earnings (profits kept in the company), and other elements like stock options or treasury stock.
The balance sheet follows the fundamental accounting equation:
Assets = Liabilities + Equity
This equation must always balance, hence the name "balance sheet." Here's a simple structure in markdown:
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Balance Sheet
_As of [Date]_
Assets
- Current Assets
- Cash
- Accounts Receivable
- Inventory
- Non-Current Assets
- Property, Plant, & Equipment
- Intangible Assets
Liabilities
- Current Liabilities
- Accounts Payable
- Short-term Debt
- Long-term Liabilities
- Long-term Debt
- Deferred Tax Liabilities
Equity
- Share Capital
- Retained Earnings
- Other Comprehensive Income
Total Assets = Total Liabilities + Total Equity
The balance sheet is crucial for shareholders to assess the company's financial position, liquidity, solvency, and how it manages its resources. It's one of the three main financial statements, alongside the income statement and cash flow statement.