What Is a Balance Sheet?

A balance sheet is a financial statement that shows the value of a company’s assets, liabilities and shareholder equity at a specific point in time. It’s an essential tool for business owners, accountants and investors because it gives them a clear picture of a company’s past, current and future financial standing.

A company’s assets are the things it owns that have value. These include physical items such as plants, trucks and equipment, as well as intangible assets such as trademarks and patents. Other assets could be cash, marketable securities or investments the company has made. Assets are balanced by a company’s debts and its shareholders’ equity, which are the sources of capital that support its operations.

As you can see from the chart below, a company’s assets are listed on the left side of the balance sheet and its liabilities and shareholder’s equity on the right. Assets are further broken down into current and long-term assets, with the most liquid elements appearing first. Similarly, liabilities and shareholder’s equity are broken down into current and long-term liabilities and equity.

The most important thing to remember when reading a balance sheet is that it communicates data as of a certain date. It does not show the flows into and out of these accounts during the reporting period.

Also, because different accounting systems and ways of handling depreciation can change the numbers posted on a balance sheet, it’s important to read the footnotes that accompany it to see how these changes were made. This is especially true when comparing data from one year to another.

Lastly, it’s important to remember that a balance sheet is a snapshot of a company’s financial health and not an accurate predictor of future performance. It’s also not a complete picture of a company because it leaves out any money it has paid out in dividends to shareholders.

The most important thing to remember when looking at a balance sheet is that it provides a snapshot of a company’s assets, liabilities, and shareholder’s equity as of a certain date. It does this by listing each of these elements in descending order starting with the most liquid. Typically, this is cash as well as other assets that can be turned into cash within the next 12 months like accounts receivable and inventory. It also includes any other assets that can be quickly converted into cash such as marketable securities or commercial paper. This section is followed by a long-term assets category that includes any assets that will not be turned into cash within the next 12 months such as property and equipment. Finally, the last section is reserved for equity which includes the money that shareholders invested in a company, plus any retained earnings that haven’t been distributed to shareholders.Bilanz