Balance Sheets

A balance sheet is a financial statement that shows a company’s financial position. It shows three things;

• what the company owns (assets),

• what it owes (liabilities),

• and the shareholders' equity, which represents the net value of the company.

With the fundamental equation of the balance sheet is:

Assets = Liabilities + Equity

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Assets.

These are resources owned by the company that provide future economic benefits. They are usually divided into…

Current Assets. Short-term assets that can convert into cash or used up within a year, such as:

• Cash and cash equivalents

• Accounts receivable (money owed to the company)

• Inventory

Non-Current Assets (or long-term assets). Assets that are expected to be used or provide benefits for more than one year, such as:

• Property, plant, and equipment (PPE)

• Intangible assets (e.g., patents, goodwill)

• Investments in other companies

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Liabilities.

These are obligations or debts the company must settle. They are divided into:

Current Liabilities. Short-term debts or obligations that are due within a year, such as:

• Accounts payable (money the company owes to suppliers)

• Short-term loans

• Accrued expenses (e.g., wages owed) 

Non-Current Liabilities. Long-term debts or obligations that are due after more than one year, such as:

• Long-term loans or bonds

• Deferred tax liabilities

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Equity.

This represents the shareholders’ ownership interest in the company.

• Share capital: Money raised by issuing shares

• Retained earnings: Profits retained in the business after dividends

• Other reserves: For example, revaluation reserves