Definition: A Balance Sheet provides a snapshot of a company's assets, liabilities, and shareholders' equity at a specific point in time.
Importance: It shows the financial position of the company, indicating its liquidity and capital structure.
Usage: Investors, management, and creditors use the Balance Sheet to evaluate financial health and financial stability.
Example:
At the end of the fiscal year, "Sweet Treats" compiles its Balance Sheet:
- Assets: $80,000 (cash, inventory, equipment).
- Liabilities: $30,000 (loans and accounts payable).
- Shareholders' Equity: $50,000 (owner’s capital investment and retained earnings).
The owner examines this Balance Sheet to assess financial health, noting a favorable asset-to-liability ratio, which allows confidence in seeking additional financing.