As the name implies, a balance sheet should reveal that assets equal liabilities and shareholder equity every time; in other words, a balance sheet should always balance. A balance sheet is based on the fundamental equation: Assets = Liabilities + Equity. It is always divided into two sections.

The assets on the balance sheet consist of what a company owns or will receive in the future—and which are measurable. On the other hand, liabilities are what a company owes, such as taxes, payables, salaries, and debt. The shareholder equity section displays the company's retained earnings and💮 the capital that shareholders have contributed. For the balance sheet to balance, total assets should be equal to the combined total of liabilities and shareholder equity. 

If the balance sheet you're working on does not balance, it's an indication that there's a problem with one or more of the accounting entries. 

Understanding Balance Sheets

A balance sheet follows the accounting principle of 澳洲幸运5官方开奖结果体彩网:double entry. This accounting system records all transactions in at least two different accounts, and therefore, it also acts as a check to make sure the entries are consistent.

The balance between assets, 澳洲幸运5官方开奖结果体彩网:liability, and equity can be illustrated in the straightforward example of purchasing a car. For example, suppose you purchꦬase a car for $10,000. In this case, you might use a $5,000 loan (i.e. debt), and $5,000 cash (i.e. equity) to purchase it. Your assets are worth $10,000 total, while your debt is $5,000 and equity is $5,000. In this example, assets are equal debt plus equity.

Then, suppose you decided to sell your car for $10,000. In this case, your asset account will decrease by $10,000, while your 澳洲幸运5官方开奖结果体彩网:cash account—or 澳洲幸运5官方开奖结果体彩网:accounts receivable—will increase by $10,000. As a result, everything will continue 🎀to balance.

Components of a Balance Sheet

Assets

Assets are the first of three major categories on the balance sheet. 澳洲幸运5官方开奖结果体彩网:Current assets represent the value of all assets that can reasonably be ex♍pected to be converted into cash within one year. They are used to fund ongoing operations and pay current expenses. Some examples of current assets include: 

• Cash and cash equivalents
• Accounts receivable
• Prepaid expenses
• Inventory
• 澳洲幸运5官方开奖结果体彩网:Marketable securities

Noncurrent assets are a company’s 澳洲幸运5官方开奖结果体彩网:long-term investments—or any asset not classified as current. Both 澳洲幸运5官方开奖结果体彩网:fixed assets, such as equipment, and 澳洲幸运5官方开奖结果体彩网:intangible assets, such as trademarks, fall under noncurr𝕴ent assets. Some examples of noncurrent assets are:

• Land
• Property and equipment
• Trademarks
• Long-term investments and even goodwill

Liabilities

Current liabilities are short-term liabilities that are due wit🌱hin one year and include: 

• Accounts payable are a short-term debt owed to suppliers
• Accrued expenses are expenses that have yet to be paid, but have a high probability of being paid

Noncurrent liabilities are also listed on the balance sheet and are included in the calculation of a company's total liabilities. Noncurrent liabilities are long-term debts or obligations and, unlike current liabilities, a company does not expect to repay its non-current liabilities within a year. Some examples of noncurrent liabilities include:

• Long-term lease obligations
• Long-term debt like bonds payable

For example, a company's long-term lease that lasts more than one fiscal year is listed on the balance sheet. The rental arrangement is listed as an asset on the balance sheet, and the lease obligation is listed as a liability. Because the lease lasts longer than one fiscal year, it is a non-current liability.

Shareholder Equity

Shareholder equity is the net of a company's total assets and its 澳洲幸运5官方开奖结果体彩网:total liabilities. Shareholder equity represents the net worth of a company and helps determine its financial health. Shareho🔥lder equity is the amount of money that would be left over if the company paid of🌟f all liabilities, such as debt, in the event of a liquidation.

Retained earnings is a category that refers to money held by a company that will either be reinvested in the business or used to pay down debt. Retained earnings are also earnings that have not been paid to shareholders via 澳洲幸运5官方开奖结果体彩网:dividends. 

Balance Sheet Example 

Below is 澳洲幸运5官方开奖结果体彩网:Apple's balance sheet from September 30𒈔, 2017, from their annual 10-K filing. A 10-K is a detailed annual filing required by the SEC that includes extensive financial data, legal information, and management discussion, with stricter regulatory disclosures compared to the annual report. 

Here are the different♏ components of the balance 🍸sheet.

• Total assets were $375,319 billion
• Total liabilities were $241,272 billion
• Shareholder equity was $134,047 billion (highlighted in yellow)

At the bottom of the balance sheet, we can see that total liabilities and shareholder equity are added together and equal $375,319 billion. This equals Apple's total assets, and therefore, their balance sheet is balanced.

The Bottom Line

The total value of a company's assets will always equal the sum of its liabilities and shareholders' equity; in other words, the balance sheet will always balance. This is a result of the fundamental accounting principle of double-entry bookkeeping, where every transaction is recorded on both sides of the equation. This acts as a check to make sure the entries are consistent. A balance sheet, an income statement, and a cash flow statement are all used to analyze and assess the health of a company.