The balance sheet is an assessment of the assets, liabilities, and capital of a business at a specific point in time.
This report allows a business owner or investor to see what the business owns as well as what it owes. What a business owns is referred to as its assets, and what a business owes is known as its liabilities.
Assets are divided into three categories on the balance sheet:
- Current Assets, including cash, inventory, accounts receivable, and investments.
- Fixed Assets, which refer to tangible assets, like furniture, property, and equipment.
- Other Assets, in this case, apply to deposit assets, personal expenses, and all other assets that don’t fit in anywhere else.
Liabilities are divided up in a similar way:
- Current Liabilities, which include all monies owed by the company that are due within one year. These could include short-term debt, accounts payable, and other financial obligations that are due within one year of the date the debt was issued.
- Other Liabilities, like convertible loans and other loans.
- Included in the liabilities section is Equity, which is the amount of asset funds that were contributed by the owners or shareholders.
At the bottom of the balance sheet, you will see the net difference between the assets and liabilities, which is always zero on a correctly prepared balance sheet.