What Is a Balance Sheet?

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A balance sheet is a record of what a business owns (assets) and owes (liabilities and shareholders’ equity). It shows the value of these items at a specific point in time. Balance sheets are typically completed on a regular basis, such as monthly, quarterly or annually. Often, companies will also complete a separate income statement that details the income and expenses that occurred during the same period.

Getting to know the basics of the balance sheet is important to anyone looking for insight into a company’s financial health. The basic equation of a balance sheet is assets equal liabilities plus net worth or shareholder’s equity. In order for this to be true, the values in each of the accounts must match up. This is a snapshot of a business at a specific moment in time and can be used to analyze the strength of a business or compare it to previous balance sheets to see how the company is growing or slowing down.

Assets are the items a company owns, including short-term inventory and long-term investments. Typical assets include cash and cash equivalents, marketable securities and accounts receivable. Non-current assets include breeding livestock, machinery and equipment and land. The balance sheet also lists any investments the company has, such as treasury bills or corporate bonds. The other side of the balance sheet is the list of liabilities, including both short-term debts and longer-term obligations. Typical short-term debts are notes payable and accounts payable, while longer-term debts are loans and mortgage payments. The balance sheet also includes any deferred tax liabilities, which are temporary timing differences between the amount of taxes owed and the amount reported for financial statement purposes.

The balance sheet is arranged so that the current assets are listed first, followed by the current liabilities and then the non-current liabilities. The current assets are listed in descending order of liquidity, with the most liquid assets at the top. This is important for assessing the company’s ability to pay its financial obligations. A quick ratio is a common measure of this, which is calculated by adding up the company’s cash and cash equivalents and marketable securities and then dividing this total by current liabilities.

Liabilities are the debts and other financial obligations a company has to outside parties. These can be either current or long-term, and they are listed on the right-hand side of the balance sheet. Typical current liabilities are the debts that will need to be paid within one year, such as a company’s accounts payable and accrued interest. Other long-term obligations are loans, interest on fixed-income securities and any leases that will be paid in the future.

Shareholders’ equity is the difference between a company’s total assets and its total liabilities, and it is recorded on the left-hand side of the balance sheet. It can be analyzed in the same way as the other two categories of the balance sheet. Some possible components of shareholders’ equity are contributed capital, preferred shares, treasury shares, retained earnings and accumulated other comprehensive income. Bilanz Hattingen

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