What is a Balance sheet ?

Author: Ruban
Sector: Education
Industry: Investment

A balance sheet reports a company's assets, liabilities and shareholders' equity at a specific for any given financial period, and provides a basis for computing rates of return and evaluating its capital structure. In general, it tells what a company owns and owes, as well as the amount invested by shareholders.

The Balance sheet is one of the three crucial financial statements; others are, income statement and the cash flow statements. All three of these statements are used for reporting the financial performance of a company over a specified accounting period.

Balance sheet formula:

In a balance sheet, Assets should always be equal to Liabilities and Shareholders' Equity.
Assets = Liabilities + Shareholders' Equity

A company has to pay for everything it owns by either borrowing money or taking it from the investors. And a higher level breakdown of it will be available in the balance sheet.

If a company raises money by borrowing $10,000 from a bank, its asset will increase by $10,000, and its liabilities will also increase by $10,000. If the company raises money by issuing stocks to investors, its assets will increase by that amount, as will its shareholders' equity.

Learn about what makes up Assets

Learn about what makes up Liabilities


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