Balance Sheet
In
financial accounting, a balance sheet or statement of financial position is a
summary of the financial balances of a sole proprietorship, a business
partnership, a corporation or other business organization, such as an LLC or an
LLP. Assets, liabilities and ownership equity are listed as of a specific date,
such as the end of its financial year. A balance sheet is often described as a
"snapshot of a company's financial condition".
A
standard company balance sheet has three parts: assets, liabilities and
ownership equity. The main categories of assets are usually listed first, and
typically in order of liquidity. The difference between the assets and the
liabilities is known as equity or the net assets or the net worth or capital of
the company and according to the accounting equation, net worth must equal
assets minus liabilities.
Another
way to look at the balance sheet equation is that total assets equals
liabilities plus owner's equity. Balance sheets are usually presented with
assets in one section and liabilities and net worth in the other section with
the two sections "balancing". A business operating entirely in cash
can measure its profits by withdrawing the entire bank balance at the end of
the period, plus any cash in hand. However, many businesses are not paid
immediately; they build up inventories of goods and they acquire buildings and
equipment.
Often,
these businesses owe money to suppliers and to tax authorities, and the proprietors
do not withdraw all their original capital and profits at the end of each
period. In other words businesses also have liabilities.
