What Is a Balance Sheet?

A balance sheet is a snapshot of a company’s assets, liabilities and shareholders’ equity as of the end of a reporting period. A balance sheet must always balance, meaning that total assets must equal total liabilities and shareholders’ equity.

The assets section of a balance sheet lists all the resources that your company owns, which include everything from cash and checks to investments and inventory. It is typically arranged in order of liquidity, with the most liquid assets appearing first (cash and cash equivalents). Other assets include accounts receivable, marketable securities, prepaid expenses, and inventory. The liability section lists the money that your business owes to creditors, suppliers, and employees. The most pressing financial obligations are accounted for in the current liabilities section, which includes accounts payable and accrued expenses. The long-term liabilities section lists any debts owed by your company that will not be paid off within one year, such as bonds and loans.

Investors and stakeholders use a balance sheet to evaluate a company’s financial strength, which is determined by the amount of assets it has relative to its liabilities. It also provides insight into the company’s liquidity, or its ability to pay its short-term financial obligations. By comparing the current balance sheet with past ones, stakeholders can track trends over time. For example, if your company’s assets have grown but your liabilities have increased more rapidly, you may want to meet with your accountant to discuss ways to reduce your debt levels. Bilanz

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