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Balance Sheet
Assets
- Current assets: Cash, accounts receivable, inventory, prepaid expenses
- Long-term assets: Land, buildings, equipment, investments
Liabilities
- Current liabilities: Accounts payable, short-term debt, current portion of long-term debt
- Long-term liabilities: Long-term debt, bonds, pension liabilities
Owner’s Equity
Total Assets = Total Liabilities and Owner’s Equity
Accounting Equation: Assets = Liabilities + Owner’s Equity
Notes:
- The balance sheet is a financial statement that summarizes a company’s assets, liabilities, and owner’s equity at a particular point in time.
- The accounting equation must always be balanced, meaning that the total assets are equal to the total liabilities and owner’s equity.
- The balance sheet is used to provide a snapshot of a company’s financial health and to track changes over time.
FAQs
What do you mean by a balance sheet?
A balance sheet is a financial statement that shows a companyโs assets, liabilities, and shareholders’ equity at a specific point in time.
What does a balance sheet explain?
A balance sheet explains a companyโs financial position by showing what it owns (assets), what it owes (liabilities), and the net worth to owners (equity).
What are the key elements of a balance sheet?
The key elements are assets (what the company owns), liabilities (what the company owes), and equity (owners’ interest in the company).
Why does a balance sheet need to balance?
A balance sheet must balance because of the accounting equation: Assets = Liabilities + Equity. This ensures that the company’s financial records are accurate and all resources are properly accounted for.
