What Is a Balance Sheet?

A balance sheet, sometimes called a statement of financial position, shows what a business owns (assets) and owes at a specific point in time. It also provides an overview of the company’s current cash inflows and outflows.

The balance sheet is one of the most important financial statements used to assess a company’s health at a given point in time. It can be analyzed in conjunction with the profit and loss statement and statement of cash flows to make informed decisions about a business.

A typical balance sheet includes a section for each of the major assets, liabilities and equity components of a company. The assets section typically lists a company’s current and noncurrent assets with each asset being broken down by type of item (e.g., office equipment, inventory, long-term investments). The liabilities section usually reports a company’s current and noncurrent liabilities with each liability being broken down by type of item as well. The equity section typically lists the company’s common stock, retained earnings and accumulated other comprehensive income.

The bottom line is that a company’s balance sheet should always equal its total liabilities minus its total assets at a given point in time. When this is not the case, it can be a red flag that there are errors in your company’s accounting records or there is some other issue that needs to be addressed. To avoid such issues, it is recommended that the balance sheet be pulled on a regular basis and compared to previous ones. Bilanz

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