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Balance Sheet

The financial statements are based on the accounting equation. This equation presents the assets of the business as well as the claims that investors, both debt and equity holders, have on the assets of the business. These claims are called liabilities (when the claim is from a debt holder) and owners' equity (when the claim is from an equity holder). The assets and the claims against them are presented in the Statement of Financial Position, otherwise known as the Balance Sheet. 


Assets: Assets are the resources used by the business in order to generate sales and generate profits. We say that assets are invested in. The managers of a business are responsible for choosing how to invest in assets and how to effectively use the firm's assets to drive earnings and growth. Common types of assets include:
- Cash and Cash Equivalents
- Accounts Receivable
- Inventories
- Property, Plant and Equipment

Liabilities: Liabilities represent the claims that debtholders have on the assets of the business. Managers of a business are responsible for choosing how much of the firm's assets are financed by debt. As well, interest payments on a firm's debt are fixed. Manager's must ensure that the firm generates enough income from the use of its assets to pay this interest expense each period. Common types of liabilities include:
- Accounts Payable
- Line of Credit
- Bank Loan
- Bonds, or Notes Payable

Owners' Equity (also Shareholders' Equity):  Owners' equity in a corporation is made up of two parts: contributed capital and retained earnings. Initially, shareholders will invest in a business in exchange for common shares, which represent proof of their ownership. These owners have a residual claim on the business's assets and income. When a firm earns an income, part of this income must be paid first as interest to debtholders. However, any income above and beyond is either kept as retained earnings or paid out to owners in the form of dividends. Retained earnings can be reinvested, increasing future earnings and returns for a business's owners.

(Owner's equity is not divided between contributed capital and retained earnings in a proprietorship or partnership. Owners of other forms of businesses can simply withdraw capital, rather than pay dividends).


Categories within Balance Sheet

Current Assets

Postings: 67

Current assets are short-term assets that will be converted to cash in the ordinary course of business typically within one year.

Balance Sheet from ratios

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Balance Sheet and Statement of Operations

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Balance Sheet and Financial Analysis

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Balance Sheet for Current Assets

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Comparing and Contrasting the Balance Sheet Treatment of a Car

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Interpret Southwest Airlines' Balance Sheet

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