Balance Sheet

 

Balance Sheet Overview

A balance sheet is a financial statement that provides a snapshot of a company's financial position at a specific point in time. It follows the accounting equation:

Assets = Liabilities + Equity

This equation ensures that the company's resources (assets) are funded either by borrowing (liabilities) or through the owner's investments (equity).

The balance sheet is divided into three main sections:

1. Assets – What the company owns.
2. Liabilities – What the company owes.
3. Equity – The residual interest of the owners in the company’s assets after deducting liabilities.

Example of a Balance Sheet

Let's assume a small company, ABC Trading Co., as of December 31, 2024.

ABC Trading Co.	Balance Sheet	As of December 31, 2024

Assets

• Current Assets

  • Cash: $15,000
  • Accounts Receivable: $8,000
  • Inventory: $12,000
    Total Current Assets: $35,000

• Non-Current Assets

  • Property, Plant & Equipment: $50,000
  • Accumulated Depreciation: ($10,000)
    Net Property, Plant & Equipment: $40,000

Total Assets: $75,000

Liabilities

• Current Liabilities

  • Accounts Payable: $6,000
  • Short-term Debt: $5,000
    Total Current Liabilities: $11,000

• Non-Current Liabilities

  • Long-term Debt: $25,000

Total Liabilities: $36,000

Equity

• Owner’s Equity
  • Common Stock: $10,000
  • Retained Earnings: $29,000

Total Equity: $39,000

Balance Sheet Equation Check:

• Assets = Liabilities + Equity
  $75,000 = $36,000 + $39,000

In this example, ABC Trading Co. has $75,000 worth of assets. These are financed by $36,000 of liabilities (debt) and $39,000 of owner’s equity. This balance sheet helps stakeholders, such as investors and creditors, to assess the financial health of the company at a specific date.