Liabilities are listed in order of how soon the requisite payment is due and payable," explains Phil Weiss, CFA, CPA and principal at Apprise Wealth Management. "On the balance sheet, assets are listed in order of how readily convertible they are into cash. Given the name "balance sheet," the assets and liabilities plus equity must be "balanced." In other words, the value of your assets must be the same value as the total of your liabilities and equity combined. These might include cash, Accounts Receivable, equipment, or even things like a trademark or prepaid expenses." Reading a balance sheet "The top portion is the assets: items of value, tangible or intangible, that the company owns. "It's called the balance sheet because it reflects the accounting equation, Assets = Liabilities + Shareholder's Equity, in balance," explains Barbee. The shareholders' equity can also refer to the net assets, which is the total liabilities subtracted from the total of assets. This is the equity refers to the shareholders' equity and includes how much shareholders have invested in the company as well as the retained earnings. Non-current liabilities may include bonds issued by the company and long-term debt obligations may also be classified under non-current liabilities as well. Current liabilities can be accounts payable, current debt obligations, and part of long-term debt obligations. This also includes current and non-current liabilities. This includes money owed for debt or expenses. Non-current assets can include things like equipment, investments, copyrights and intellectual property So for example, you'll have your current assets which include cash and cash equivalents, accounts receivable, and inventory. This includes current and non-current assets and is listed in order of liquidity. Let's review what these parts mean individually: The balance sheet equation is: Assets = Liabilities + Equity So for example, a P&L statement may be for Q4, a balance sheet may be for one single day at the end of a particular accounting period. The P&L reflects income and expenses over time, but the balance sheet shows the company's financial position within a single fixed moment," explains Courtney Barbee, owner and COO at The Bookkeeper. "I like to explain to clients that the profit and loss statement is a movie, while the balance sheet is a photo. A balance sheet is just one type of statement and differs a bit from a profit and loss statement (P&L), which is another commonly used financial report used in evaluating a business' finances. When it comes to evaluating a company's financial wellbeing, there are different types of financial statements to look at. It's used to evaluate a company's financial health and is also known as a 'statement of financial position.' Businesses use various accounting tools - including a balance sheet - to assess where a company is at financially at a specific point in time. A balance sheet is a type of financial statement that outlines a particular business's assets as well as liabilities, plus the shareholders equity on a specific day.
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