The balance sheet shows a company’s financial position at a specific date.
Structure:
- Assets: what the company owns
- Liabilities: what the company owes
- Equity: residual claim of the owners
This structure comes directly from the Accounting Equation.
Common items
Current assets:
- cash
- accounts receivable
- inventory
Current liabilities:
- Accounts Payable
- Unearned Revenue
- short-term debt
Noncurrent items:
- property and equipment
- Term Debt
Limitation
Because the balance sheet is a snapshot at one date, it does not show the full timing of cash flows or profitability. That is why it should be read together with the Income Statement and Cash Flow statement.