Balance Sheets
The balance sheet, also known as the statement of financial position, is a snapshot of a company's financial condition at a single point in time. It presents a summary listing of a company's assets, liabilities, and owners' equity. The balance sheet is prepared as of the last day of the business year. Therefore, it corresponds to the end of the time period covered by the income statement.
To understand the balance sheet, its purpose, and its contents, several accounting concepts need to be examined. First of all, the balance sheet represents the accounting equation for a company. The accounting equation is a mathematical expression that states the following:
Assets = Liabilities + Owners' Equity
Stated more fully, this means that the dollar total of the assets equals the dollar total of the liabilities plus the dollar total of the owners' equity. The balance sheet presents a company's resources (i.e., assets, or anything the company owns that has monetary value) and the origin or source of these resources (i.e., through borrowing or through the contributions of the owners). By expressing the same dollar amount twice (once as the dollar total of the assets, then as the dollar total of where the assets came from or who has an equity interest in them), we see that the two amounts must be equal or balance at any given point in time.
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