What is balance sheet ?

 A balance sheet is a financial statement that provides a snapshot of a company's financial position at a specific point in time. It presents a summary of the company's assets, liabilities, and shareholders' equity. The balance sheet follows the fundamental accounting equation:

Assets = Liabilities + Shareholders' Equity

Here's a breakdown of the components of a typical balance sheet:

  1. Assets: Assets are what a company owns or controls, representing its economic resources. They are classified into two categories:

    a. Current Assets: These are assets expected to be converted into cash or used up within one year. Examples include cash and cash equivalents, accounts receivable, inventory, and short-term investments.

    b. Non-current Assets: Also known as long-term assets or fixed assets, these are resources with a useful life exceeding one year. Examples include property, plant, and equipment, intangible assets, long-term investments, and goodwill.

  2. Liabilities: Liabilities are the company's obligations or debts to external parties, such as lenders, suppliers, or employees. They can be classified into two categories:

    a. Current Liabilities: These are obligations that are due within one year. Examples include accounts payable, short-term loans, accrued expenses, and current portion of long-term debt.

    b. Non-current Liabilities: Also known as long-term liabilities, these are obligations with a maturity longer than one year. Examples include long-term loans, bonds payable, lease obligations, and pension liabilities.

  3. Shareholders' Equity: Also referred to as owners' equity or stockholders' equity, this represents the residual interest in the company's assets after deducting liabilities. It includes the following components:

    a. Share Capital: The amount of capital raised by issuing shares to shareholders.

    b. Retained Earnings: Accumulated profits or losses retained in the company over time.

    c. Additional Paid-in Capital: The amount of capital received from shareholders above the par value of shares issued.

    d. Treasury Stock: The company's own shares repurchased and held by the company.

    e. Accumulated Other Comprehensive Income: Changes in equity resulting from non-owner transactions, such as foreign currency translation adjustments or unrealized gains/losses on investments.

The balance sheet is essential for understanding a company's financial health, liquidity, and solvency. It provides insights into the company's assets and liabilities structure and its net worth. It is often used by investors, creditors, analysts, and stakeholders to evaluate the company's financial position and make informed decisions.

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