A balance sheet provides a snapshot of a company's financial position at a specific point in time and includes detailed information about the following:
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Assets: This section lists everything the company owns and is typically divided into:
- Current Assets: Cash, accounts receivable, inventory, and other assets expected to be converted into cash or used within one year.
- Non-Current Assets: Long-term investments, property, plant and equipment, intangible assets, and other assets that are expected to provide value over a longer period.
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Liabilities: This section details what the company owes to outside parties and is also divided into:
- Current Liabilities: Obligations that are due within one year, such as accounts payable, short-term debt, and other short-term liabilities.
- Non-Current Liabilities: Long-term obligations that are due beyond one year, such as long-term debt, deferred tax liabilities, and other long-term obligations.
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Equity: This section reflects the owners' interest in the company, commonly referred to as shareholders' equity, and may include:
- Common stock
- Preferred stock
- Additional paid-in capital
- Retained earnings
- Treasury stock
The fundamental accounting equation that underlies the balance sheet is: Assets = Liabilities + Equity
This equation illustrates that a company's resources (assets) are funded either by borrowing money (liabilities) or by the owners' contributions and retained earnings (equity).
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