The balance sheet is a vital financial statement in accounting. The significance of this financial statement is that it displays the financial position of the business at a point in time. Many international companies call their balance sheet, Statement of Financial Positions. The balance sheet is recorded quarterly and annually by businesses.
The balance sheet shows the basic accounting equation. The basic accounting equation is Assets= Liabilities + Owners Equity. Assets are something the company has the right to and has probable economic benefit in the future. Assets can be both direct and indirect. Some examples of an asset are land, cash, and inventory. A liability is something that is owed. There are two types of liabilities; current liabilities and noncurrent liabilities. Current liabilities are something that has been owed within 12 months and a noncurrent liability is something that has been owed for longer than 12 months. Some examples of liabilities are accounts payable, salaries payable, and wage payable.
Shareholders equity consist of contributed capital, retain earnings, unrealized gains or losses, and noncontrolling interest. An example of contributed capital is stock—the concept of putting money into investments. Retained earnings is the amount that has been retained or kept. Retained earnings can be calculated by adding the beginning retained earning with the company’s net income and then subtracting the dividends. The unrealized gains and losses cause change from the recorded quarters and years.
The balance sheet calculates the accounting equation and the financial position of the company. The balance sheet is recorded at a specific point in time. Assets, liabilities, and owner equity are the 3 components that make up the balance sheet. The balance sheet is often analyzed by investors because the balance sheet shows information about the company’s finances, their process, their goals, and their financial strategies.
Article author : Leigha Williams