Definition
The Balance Sheet is one of the three core Financial Statements. It presents a snapshot of a company’s financial position, detailing its Assets (resources), Liabilities (obligations), and Shareholders’ Equity (net worth) at a specific point in time (e.g., end of a quarter or fiscal year).
Fundamental Equation
The core principle of the Balance Sheet is the Accounting Equation: This equation signifies that all of a company’s assets must be financed by either debt (Liabilities) or equity (Shareholders’ Equity). It must always balance.
Structure
- Assets: Resources owned/controlled by the company expected to provide future economic benefit. Typically listed in order of liquidity.
- Current Assets: Expected to be converted to cash within one year (e.g., Cash, Accounts Receivable, Inventory).
- Long-Term Assets: Not expected to be converted to cash within one year (e.g., Property, Plant & Equipment (PP&E), Intangible Assets, Goodwill).
- Liabilities: Obligations owed by the company to external parties. Typically listed in order of maturity.
- Current Liabilities: Obligations due within one year (e.g., Accounts Payable, Accrued Expenses, Short-Term Debt).
- Long-Term Liabilities: Obligations due after one year (e.g., Long-Term Debt, Deferred Revenue, Deferred Tax Liabilities).
- Shareholder’s Equity: The residual interest in the assets after deducting liabilities; represents ownership claims.
- Includes items like Common Stock, APIC, Retained Earnings, Treasury Stock.
See also: Income Statement, Cash Flow Statement