Balance sheet

Definition

A balance sheet is a financial statement that provides a snapshot of a company's financial position at a specific point in time. It lists assets, liabilities, and shareholders' equity to give insights into the company's financial stability.

5 Must Know Facts For Your Next Test

1. A balance sheet follows the accounting equation: Assets = Liabilities + Shareholders' Equity.
2. It helps in assessing the liquidity, solvency, and capital structure of a company.
3. The balance sheet is divided into two main sections: assets on one side and liabilities and shareholders' equity on the other.
4. Current assets are listed before non-current assets; similarly, current liabilities are listed before long-term liabilities.
5. Balance sheets are typically prepared at the end of an accounting period, such as monthly, quarterly, or annually.

Review Questions

• What is the primary purpose of a balance sheet?
• How does the accounting equation relate to the balance sheet?
• Why is it important for companies to regularly prepare balance sheets?

Related terms

Income Statement: A financial statement that shows a company’s revenues and expenses over a specific period, indicating how revenue is transformed into net income.

Cash Flow Statement: A financial statement that provides aggregate data regarding all cash inflows and outflows a company receives from its operations, investing activities, and financing activities.

Shareholders' Equity: The residual interest in the assets of an entity after deducting liabilities; essentially what is owned by shareholders.