What is a Balance Sheet?
What is a Balance Sheet? What are assets, liabilities and Owner's Equity? What is the importance of Balance Sheet for the business.
A balance sheet is a financial statement that summarizes a company's assets, liabilities, and owner's equity at a specific point in time. It is one of the three main financial statements, along with the income statement and the statement of cash flows.
- Assets are what a company owns. They can be either tangible assets, such as cash, inventory, and property, or intangible assets, such as patents, trademarks, and goodwill.
- Liabilities are what a company owes to others. They can be either current liabilities, which are due within one year, or long-term liabilities, which are due more than one year from now.
- Owner's equity is the difference between a company's assets and liabilities. It represents the amount of money that the owners have invested in the company, plus any profits that the company has earned and not yet distributed to the owners.
- Liquidity: How easily can the company turn its assets into cash?
- Solvency: Does the company have enough assets to cover its liabilities?
- Financial flexibility: How easily can the company adapt to changes in its financial environment?
- Owner's equity: How much money have the owners invested in the company?
- Profitability: How much profit has the company earned?