A balance sheet is a financial statement that provides a snapshot of a company’s financial position at a specific point in time. It details what a company owns (assets), what it owes (liabilities), and its net worth (equity). The fundamental equation of a balance sheet is:
Assets = Liabilities + Equity
Components of a Balance Sheet
- Assets: Resources owned by the company, categorized as:
- Current Assets: Cash, accounts receivable, inventory, etc.
- Non-Current Assets: Property, plant, equipment (fixed assets), intangible assets like patents, etc.
- Liabilities: Obligations the company owes to others, including:
- Current Liabilities: Accounts payable, short-term debt, taxes payable, etc.
- Non-Current Liabilities: Long-term debt, deferred tax liabilities, etc.
- Equity: The residual interest in the assets of the company after deducting liabilities, often consisting of:
- Shareholders’ Equity: Capital from shareholders, retained earnings, etc.
A balance sheet is typically divided into two sections, with assets on one side and liabilities and equity on the other, both sides balancing out.
