The Goal of The Balance Statement (part 3)

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Balance sheets show what a company owns and what it owes at a fixed point in time by providing detailed information about a company’s assets, liabilities and shareholders’ equity. 

On a company’s balance sheet would include on the left side the companies list of their assets. Assets include investments a company makes things that a company owns that have value. This typically means they can either be sold or used by the company to make products or provide services that can be sold. Physical property, such as  

  • Plants
  • Trucks
  • Equipment 
  • Inventory 
  • Or things that can’t be touched but nevertheless exist and have value, such as trademarks and patents.  
  • And cash itself is an asset.

While on the right side of the balance sheet, companies list their liabilities amounts of money that a company owes to others. This can include all kinds of obligations, like  

  • Money borrowed from a bank to launch a new product
  • Rent for use of a building
  • Money owed to suppliers for materials
  • Payroll company owes to its employees
  • Environmental cleanup
  • Costs, or taxes owed to the government
  • Liabilities also include obligations to provide goods or services to customers in the future.

Followed by their shareholders’ equity sometimes called capital or net worth it’s the money that would be left if a company sold all of its assets and paid off all of its liabilities. This leftover money belongs to the shareholders, or the owners, of the company.

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