Learn how to understand Financial Statement of a company (with examples)

Author
AAHAcademy
Finance Management Course
AllAssignmentHelp Academy
  • 12 lessons
  • 6 quizzes
  • 1 week duration

2.1 What is a Balance Sheet?

 

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A balance sheet is a financial statement that shows assets and liabilities of a company at a particular point in time.

A balance sheet consists of three things:

  • Assets
  • Liabilities
  • Owner’s equity

Assets are those resources that are possessed by the company for the future usage. Examples are cash, buildings, inventory, etc.

Liabilities are those resources that are owed by the company at present, but it has to pay it back some time in the future. Examples are taxes, bank debt, employee salaries, etc.

Owner’s equity is the money of the company owners. Example: Common stock, Additional paid-in capital, and retained earnings.

A typical balance sheet looks something like below:

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You must remember an important equation of the balance sheet:

Assets = Liabilities + Owner’s Equity

The total amount in the asset side must always equal to the total in the liabilities side. If it is not, then there is something wrong with the balance sheet and requires recheck.