Assets = Liabilities + Equity

Assets = Liabilities + Equity

At the end of the company's reporting period, a snapshot is taken of the company's financial health. A balance sheet allows owners to get a glimpse into the company's financial standings. The balance sheet is one of the three primary financial statements that business owners use. It allows owners to get a glimpse into the company's financial standings and see what the company's financial position is. It shows what assets are owned, which liabilities are outstanding, and any equity that has been made.

Assets 

Assets are the things companies own and are categorized into two categories; current and non-current assets. Current assets are defined as cash and any other asset that will be turning into cash within the company's operating cycle. Assets are the top part of the balance sheet and will be listed in the order of liquidity. Liquidity meaning that this item can be turning into cash quickly. An example of what order current assets would appear on the balance sheet is; cash, temporary investments, accounts receivable, inventory, supplies, and prepaid expenses.

Non-current assets are not intended to be turned into cash with the company's operating cycle and are what the company owns. They're the fixed assets such as office equipment, building property, land, long-term investments, stocks, and bonds.

Liabilities

Liabilities are financial contracts that require a payment of cash for compensation. Liabilities are also categorized into two categories; current and non-current liabilities. Current (or short-term) Liabilities are obligations that are to be paid within 12 months or expected to be paid off within its normal operating cycle. Some examples of current liabilities are accounts payable, wages, and rental payments.

Non-current liabilities, also known as long-term liabilities are financial contracts that are not due within 12 months, or within the company's operating cycle. They're not expected to be liquidated anytime soon. Long-Term liabilities indicate how much the company is currently in debt vs it's cash flow. Some examples of long-term liabilities are bonds payable, long-term leases, and product warranties.

Equity

Equity is what is remaining after you subtract what you own (assets) from what you owe (liabilities) and is called net worth. After all debts and obligations have been paid for any remaining values belong to the business owners, also known as owner's equity.

Want to learn more?
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Crystal Williams, Web Marketing Assistant, WebSan Solutions Inc.,