Over the course of his career, Eric Greenfield has offered bookkeeping and accounting services to numerous businesses in different industries. For these businesses, Eric Greenfield prepares financial statements that include balance sheets and profit and loss statements.
The balance sheet is one of the main components of a company’s financial reports. It gives an overview of the company’s financial position. The balance sheet has three essential components: assets, liabilities, and equity.
Assets are what the company owns. They are possessions that have value and are often used to generate revenue. They include inventory, land, buildings, machinery, and receivables. Assets are split into current and non-current assets. Current assets can be converted into cash in one year (receivables) while non-current assets are more permanent in nature (land and buildings).
Liabilities are what the company owes to suppliers, creditors, lenders, and tax authorities. They are split into current and non-current liabilities. Current liabilities are due for payment within a year while non-current liabilities have a longer maturity date.
Equity is the difference between assets and liabilities. It usually represents funds by shareholders and retained earnings.
The relationship between the three is expressed as assets equal liabilities plus equity.
