.jpeg)
1. Assets: This section lists all the resources owned or controlled by the company, which have economic value. Assets are typically categorized into two groups:
- Current Assets: These are assets that are expected to be converted into cash or used up within one year. Examples include cash, accounts receivable, and inventory.
- Non-current Assets (or Fixed Assets): These are assets with a longer-term usefulness, such as buildings, machinery, and long-term investments.
2. Liabilities: This section represents the company's obligations or debts. Liabilities are also divided into two categories:
- Current Liabilities: These are debts or obligations that are expected to be settled within one year, like accounts payable, short-term loans, and accrued expenses.
- Non-current Liabilities: These are long-term debts and obligations, such as long-term loans and bonds.
The balance sheet equation is:
Assets = Liabilities + Equity
3. Equity: This represents the owner's or shareholders' stake in the company, often referred to as shareholders' equity or owner's equity. It's calculated as the residual interest in the assets of the entity after deducting liabilities. Equity includes items like common stock, retained earnings, and additional paid-in capital.
The balance sheet provides a clear picture of a company's financial health by showing what it owns (assets), what it owes (liabilities), and the ownership interest (equity). It's an essential tool for investors, creditors, and analysts to assess the company's financial stability and performance.
