What Is a Balance Sheet?

A balance sheet is a record of an organization’s assets, liabilities and net worth at a particular point in time. It is also known as the “statement of financial position” or a “company’s financial snapshot.” A balance sheet provides detailed information about a company’s resources (assets), sources of capital (liabilities) and its net worth. It is used by investors, lenders and others to assess a company’s financial health.

A balanced sheet is organized into two columns, with a list of a firm’s itemized assets on the left and its corresponding list of liabilities and shareholders’ equity on the right. A balance sheet is said to be balanced if the total value of a company’s assets equals its total liabilities and shareholders’ equity. If the value is not equal, there is a deficit, and the company is considered to be in failing financial condition.

Assets are listed in a balance sheet according to their level of liquidity, with the most liquid assets appearing first. The most liquid assets are cash and cash equivalents, which include money held in checking and savings accounts, short-term investments and marketable securities. Other assets include inventory, accounts receivable and fixed assets such as machinery, plant and equipment and trademarks.

Liabilities, which are a company’s debts and obligations to other parties, are recorded on the right side of the balance sheet. A company’s liabilities are divided into current and long-term liabilities, with the former being those that are due to be settled within a year. This would include accounts payable, accrued interest and short-term loans. Long-term liabilities are those that will be paid in the future, such as mortgage payments and corporate bonds.

Shareholders’ equity, which is recorded in the bottom-most section of the balance sheet, represents the initial investment made into a company by its shareholders and any retained earnings. It is calculated by subtracting a company’s total liabilities from its total assets. A company’s total net assets are the remainder of this calculation, and if these are positive, the company is healthy.

As a company grows, the amount of its assets will increase while its liabilities decrease, creating a surplus of net worth. This is a good sign, and if the company continues to grow at a steady rate, it will likely be able to pay its debts as they come due in the future. A company’s net worth is also a good indicator of its creditworthiness, and banks may use it to determine whether or not to grant a loan. A company’s financial statements are typically prepared by an accountant or bookkeeper, though small businesses often prepare them themselves using spreadsheet software programs that can generate a report based on the company’s data input. These programs can also provide useful analysis tools for interpreting the results. Larger companies often rely on external auditors to review their financial statements. These reports are sometimes published by the company in press releases. Alternatively, they can be obtained from the company’s public filing office. Bilanz Hattingen

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