BALANCE SHEET Flashcards
The Balance Sheet
Definition: The balance sheet is a fundamental financial statement that provides a snapshot of a company’s financial position at a specific point in time, typically at the end of an accounting period.
Components: Assets, Liabilities and Equity
Balance sheet formula
total assets = total liabilities + total equity.
Assets
Definition: Assets are economic resources that a company owns or controls, which are expected to provide future benefits.
Types:
Non-Current Assets: Long-term assets not intended for sale, such as property, plant, equipment, and intangible assets.
Current Assets: Short-term assets that are expected to be converted into cash or used up within one year, including cash, accounts receivable, and inventory.
Formula for Total Assets
Total Assets = Non-Current Assets + Current Assets
Liabilities
Definition: Liabilities are obligations or debts that the company owes to external parties. All businesses must take on liabilities in order to operate and grow. A proper balance of liabilities and equity provides a stable foundation for a company.
Types:
Non-Current Liabilities: Long-term obligations, such as long-term loans and bonds.
Current Liabilities: Short-term obligations that the company needs to settle within one year, including accounts payable, short-term loans, and accrued expenses.
Formula for Total Liabilities
Total Liabilities = Non-Current Liabilities + Current Liabilities.
Formula for Net Assets
Net Assets = Total Assets - Total Liabilities.
Equity
Definition: Theamount of money that would be returned to a business if all of the assets were liquidated. It is the value of your business after deducting your liabilities from your assets.
Components:
Share Capital: The amount invested by shareholders in the company by purchasing shares.
Retained Earnings: Accumulated profits that the company has retained and not distributed to shareholders as dividends.
Importance: Equity indicates the company’s net worth and the shareholders’ stake in the business. It is crucial for assessing the financial health and solvency of the company.
Formula for Total Equity
Total Equity = Share Capital + Retained Earnings.
