A balance sheet is a financial statement that provides a snapshot of a company’s financial position at a specific point in time. It lists a company’s assets (what it owns), liabilities (what it owes), and equity (the difference between assets and liabilities). The balance sheet is used to assess a company’s financial stability and its ability to meet its short-term and long-term obligations.
The balance sheet is divided into two main sections: assets and liabilities and equity. Assets are divided into current assets (such as cash, accounts receivable, and inventory) and fixed assets (such as real estate, machinery, and equipment). Liabilities are divided into current liabilities (such as accounts payable and short-term debt) and long-term liabilities (such as long-term debt and deferred taxes). Equity includes the company’s net income and any additional investments made by the company’s shareholders.
The balance sheet is calculated by subtracting a company’s liabilities from its assets. The resulting figure is the company’s equity. The balance sheet must balance, meaning that the sum of a company’s assets must equal the sum of its liabilities and equity.
The balance sheet is an important financial statement for investors and analysts, as it provides information about a company’s financial position and its ability to meet its financial obligations. It is also an important tool for company management, as it provides information about the company’s financial position that can be used to make strategic decisions and to identify areas for improvement.