Balance Sheet
Explanation: A balance sheet is a financial statement that provides a snapshot of a company’s financial position at a specific point in time. It lists the company’s assets, liabilities, and shareholders’ equity, following the accounting equation: Assets = Liabilities + Shareholders’ Equity. The balance sheet helps stakeholders assess the company’s financial health and stability.
Example: A company’s balance sheet shows total assets of $500,000, total liabilities of $300,000, and shareholders’ equity of $200,000. This indicates that the company has financed its assets with a combination of debt and equity.
Reference Link: For more information on balance sheets, visit Investopedia’s Balance Sheet.
FAQs:
- What are the main components of a balance sheet?
- The main components are assets, liabilities, and shareholders’ equity.
- How is a balance sheet different from an income statement?
- A balance sheet provides a snapshot of a company’s financial position at a specific point in time, while an income statement shows financial performance over a period.
- What is the accounting equation used in balance sheets?
- The accounting equation is Assets = Liabilities + Shareholders’ Equity.
- Why is the balance sheet important?
- It provides insights into a company’s financial health, liquidity, and capital structure.
- How often are balance sheets prepared?
- Balance sheets are typically prepared quarterly and annually.