A balance sheet provides a snapshot of a company’s financial standing as of a specific point in time. It lists all of a firm’s assets, liabilities and shareholders’ equity as of that date.
For a business, this document is essential for many reasons. Among other things, it can serve as proof of a company’s creditworthiness when applying for loans. It also helps investors gauge a company’s current performance as well as its future potential. Moreover, it’s commonly used by accountants and finance professionals to quickly calculate important metrics like current ratios.
In terms of its structure, a balance sheet will typically list assets in the top section (or left column), followed by the company’s liabilities and then shareholders’ equity. However, the exact composition of this information will vary from one company to another. The assets section will often include accounts receivable and inventory in addition to cash and marketable securities. The liabilities section will likely note the company’s short-term obligations, such as accounts payable and wages receivable, while the shareholders’ equity section will usually detail a firm’s common stock value, retained earnings and accumulated other comprehensive income.
All of this information will usually be sorted in a format that follows generally accepted accounting principles (GAAP) or International Financial Reporting Standards (IFRS). For example, in the U.S., accounts are typically listed from most liquid to least, whereas in other countries, the opposite may be true. In addition, different accounting systems and methods will sometimes change the figures displayed on a balance sheet. Bilanz