Financial Management 101: Introduction to Business Finance-Balance Sheet Details

Balance Sheet Details

Pdf Summary

A balance sheet is a point-in-time document that provides an overview of a company's assets, liabilities, and equity at a specific date. It shows what the company owns (assets), what it owes (liabilities), and the value of the company (equity). Equity represents the initial investment by owners and shareholders, along with any net income or net losses since the company started operating.<br /><br />Assets include resources owned by the company, such as cash, marketable securities, accounts receivable, and inventory. Cash refers to legal tender or coins that can be used for transactions, while marketable securities are liquid securities that can be quickly converted into cash. Accounts receivable represents money owed by customers for goods or services already delivered but not yet paid for. Inventory consists of equipment and parts ready for sale. It is an important asset as it generates revenue for the company.<br /><br />Liabilities are debts owed by the company to creditors, such as loans, lines of credit, and accounts payable. Floor planning is a form of financing for purchasing inventory at wholesale. Notes payable are short-term obligations usually payable within a year. Other liabilities are accrued but not paid expenses, generated through accrual accounting. Long-term liabilities are obligations due in more than a year, such as installment notes and mortgages.<br /><br />Net worth or owner equity is the difference between what the company owns and owes. It represents the owners or shareholders' share of the company. Net worth is included with liabilities because it is the owner's claim against the assets owned. It may also be called book value and represents the total value of the company's assets that shareholders would receive if the company were liquidated.<br /><br />The total assets, liabilities, and net worth/owner equity on the balance sheet must balance, ensuring that the company's resources equal its obligations and claims against those resources.

Keywords

balance sheet

assets

liabilities

equity

company overview

cash

marketable securities

accounts receivable

inventory

net worth