balance sheets

 

A balance sheet is a financial statement that shows a company's assets, liabilities, and equity at a specific point in time. It is one of the three core financial statements, along with the income statement and cash flow statement.

Assets are resources that are owned by the company and are expected to provide economic benefits in the future. Examples of assets include cash, inventory, equipment, and accounts receivable.

Liabilities are debts that the company owes to others. Examples of liabilities include accounts payable, loans, and taxes payable.

Equity is the difference between the company's assets and liabilities. It represents the ownership interest of the company's shareholders.

The balance sheet equation states that assets must equal liabilities plus equity:

Assets = Liabilities + Equity

This equation is always true, and it is the basis for all accounting transactions.

Balance sheets are used by a variety of stakeholders, including investors, creditors, and management. Investors use balance sheets to assess the financial health of a company and to make investment decisions. Creditors use balance sheets to assess the risk of lending money to a company. Management uses balance sheets to track the company's financial performance and to make decisions about how to allocate resources.

Here is an example of a simple balance sheet:

Assets

  • Cash: $10,000

  • Inventory: $20,000

  • Equipment: $30,000

Liabilities

  • Accounts payable: $15,000

  • Loans payable: $10,000

Equity

  • Shareholder equity: $25,000

Total Assets = Total Liabilities + Total Equity

$60,000 = $25,000 + $35,000

Balance sheets can be more complex than the example above, but they all follow the same basic format. They are an important tool for understanding the financial health of a company.