A balance sheet is a financial statement that shows a company’s financial position at a specific point in time, typically at the end of a fiscal quarter or year. It is a snapshot of a company’s assets, liabilities, and equity.
A balance sheet is divided into two sections: assets and liabilities. The assets section lists the company’s resources, such as cash, accounts receivable, inventory, and property, and the liabilities section lists the company’s debts, such as accounts payable, loans, and taxes. The equity section shows the value of the company that belongs to the shareholders, also known as net worth.
The balance sheet is based on the accounting equation, which states that assets must equal liabilities plus equity. In other words, the value of the company’s assets must be equal to the value of the company’s liabilities plus the value of the company’s equity.
The balance sheet is an important financial statement because it provides information about a company’s liquidity, or its ability to meet its short-term obligations, and its solvency, or its ability to meet its long-term obligations. It also provides information about a company’s ability to generate cash flow, and it can be used to analyze a company’s financial performance and stability over time.