What Is a Balance Sheet?

A balance sheet is a snapshot of the financial health of a company at a specific point in time. It depicts all the assets, liabilities and shareholders’ equity that a business has at that moment. While there are some differences between different balance sheets (due to different accounting systems and ways of handling things like depreciation and inventory), the general structure of the report is always the same.

Assets are listed first, and categorized according to their convertibility into cash. These include concrete assets like cash and inventories, marketable securities (investments), money owed to the business by payers (accounts receivable) and intangibles of value such as patents and trademarks. In addition to these, a few other assets may also be listed here, such as fixed assets. All of these are then broken down further into two further categories: current and long-term assets.

Liabilities are the amounts that a company owes to others, and these are usually broken down into two further categories as well: current and long-term liabilities. The former refers to liabilities that are due within a year of the reporting date, while the latter includes any outstanding debt or mortgage payments, corporate bonds and pension obligations. The final element of the balance sheet is shareholder’s equity, which is calculated as total assets minus total liabilities.

This formula shows that a company pays for everything it owns through either borrowing money as debt (liabilities) or by taking it from investors or shareholders as profit (shareholders’ equity). The balance sheet is the only one of the three primary financial statements that can show you how much you actually own at any given moment. Bilanz

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