Business Balance Sheet
What it is, how it’s calculated and why it’s important to small business owners.
Definition
A Balance Sheet reflects an organization’s assets, liabilities and capital at a particular point in time. The total number of assets must equal the sum of liabilities and shareholders’ equity.
Asset: a resource that an individual, organization or country owns that has economic value and is expected to provide future benefit
Liability: a financial debt a company owes to a creditor
Shareholders’ Equity: the net difference between a company’s total liabilities and total assets
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How it is Used
The Balance Sheet helps a company understand and keep track of what they own and owe, as well as how much their shareholders have invested. It represents the status of a company’s financial health at a particular time, so it is commonly referred to as a “snapshot” of the company’s financial position. The Balance Sheet is used by banks to decide if a company is qualified for additional credit or loans. It is also used by current investors, potential investors, competition, government agencies and many others.
Additional Information
The Balance Sheet, Income Statement, Statement of Retained Earnings and Cash Flow Statement are all interrelated. These four financial statements are prepared in the following order: Income Statement, Statement of Retained Earnings, Balance Sheet, Cash Flow Statement. These four statements make up the cornerstone of a company’s financial statements and help provide insight into a company.
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