Balance Sheet Essentials

Balance Sheet Purpose

• Presents company’s financial position at a specific date (“as of”)

• Lists resources owned, obligations owed, and residual interest (equity)

Core Accounting Equation

• \text{Assets}=\text{Liabilities}+\text{Owner's\ Equity}

Assets

• Definition: Economic resources owned, expected to provide future benefit

• Common accounts:

  • Cash

  • Accounts Receivable (customer owes money)

  • Inventory

  • Prepaid Expenses

  • Land, Building, Equipment

Liabilities

• Definition: Present obligations to pay cash or provide services

• Identifiers: Accounts containing “payable” or “unearned”

• Common accounts:

  • Accounts Payable

  • Taxes Payable

  • Unearned Revenue (cash received before earning)

  • Long-Term Debt

Owner’s Equity

• Definition: Owners’ residual claim after liabilities; funding from owners + retained profits

• Key accounts:

  • Capital Stock (issued shares)

  • Retained Earnings (cumulative profit not distributed)

Quick Recall

• Balance sheet = snapshot (not a period) of \text{Assets},\ \text{Liabilities},\ \text{Equity}

• Assets show “what the company owns”; Liabilities show “what it owes”; Equity shows “owner financing + retained profit”

• Every entry obeys the accounting equation, ensuring totals balance.