Meaning of Balance Sheet (What it is, Concept and Definition)

What is Balance Sheet:

The balance sheet It is the accounting report of the financial status of a company at a given time in which their economic situation is reflected.

The balance sheet, also known as balance sheet either statement of financial positionis part of the accounts that every company must do annually in each accounting year, generally once a year.

To make the balance sheet, the accounts are arranged in three basic groups that represent each of the different assets of the company: assets, liabilities and net worth.

See also What is Balance?

In the assets All the assets and economic rights available to the company will be found, as well as all those elements that can generate money for the company: cash, money in banks, accounts receivable, materials, merchandise, machinery, vehicles, premises, etc

In the liabilitiesFor its part, all obligations of an economic nature contracted by the company will be reflected. These include debts, loans, deferred payment purchases, taxes payable, etc.

The net worthFinally, it results from the assets after deducting the liabilities, and includes the contributions of the owners or shareholders, as well as the accumulated results. Net worth is what shows the ability of a company or society to finance itself.

See also Active and Passive.

In short, to make a general balance sheet you must consider what you have, subtract what you owe, and the result of said operation will be the net worth, or, in other words: assets – liabilities = net worth.

The information offered by the balance sheet is essential to be aware of debts or liquidity status, which is very important for decision making and resource management in a company. Balance sheets are prepared by accounting professionals.

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