The balance sheet, also known as the statement of financial position, provides a snapshot of a

company's financial position at a specific point in time. It is based on the accounting equation:

Assets=Liabilities+Owner’s EquityAssets=Liabilities+Owner’s Equity

The balance sheet is divided into two main sections: assets and liabilities + owner's equity. Here
are the key components of a balance sheet:

1. Assets:
o Current Assets:
 Cash and Cash Equivalents: This includes physical currency, bank
balances, and short-term, highly liquid investments.
 Accounts Receivable: Amounts due from customers for goods or services
sold on credit.
 Inventory: The value of goods and materials held for production or resale.
 Prepaid Expenses: Payments made for future expenses, such as insurance
or rent.
o Non-Current Assets (or Long-Term Assets):
 Property, Plant, and Equipment (PP&E): Tangible assets like land,
buildings, machinery, and vehicles.
 Intangible Assets: Non-physical assets like patents, trademarks,
copyrights, and goodwill.
 Investments: Long-term investments in stocks, bonds, or other securities.
 Other Non-Current Assets: Other long-term assets that don't fit into the
categories above.
2. Liabilities:
o Current Liabilities:
 Accounts Payable: Amounts owed to suppliers for goods or services
purchased on credit.
 Short-Term Debt: Loans and obligations that are due within a year.
 Accrued Liabilities: Unpaid expenses that have been incurred but not yet
paid.
o Non-Current Liabilities (or Long-Term Liabilities):
 Long-Term Debt: Loans and obligations that extend beyond one year.
 Deferred Tax Liabilities: Taxes that are deferred and will be paid in the
future.
 Other Non-Current Liabilities: Other long-term obligations that don't fit
into the categories above.
3. Owner's Equity:
o Common Stock: The value of shares issued to shareholders.
o Retained Earnings: Accumulated profits or losses that have not been distributed
as dividends.

The balance sheet always adheres to the accounting equation, ensuring that total assets equal the
sum of liabilities and owner's equity. This provides a comprehensive view of a company's
financial position and is a crucial document for financial analysis and decision-making.