Introduction to Balance Sheet
The accounting balance sheet is one of the five major financial statements used by accountants and business owners. (The other major financial statements are the income statement, statement of comprehensive income, statement of cash flows, and statement of stockholders’ equity) The balance sheet is also referred to as the statement of financial position.
The balance sheet presents a company’s financial position at the end of a specified date. Some describe the balance sheet as a “snapshot” of the company’s financial position at a point (a moment or an instant) in time. For example, the amounts reported on a balance sheet dated December 31, 2019 reflect that instant when all the transactions through December 31 have been recorded.
Because the balance sheet informs the reader of a company’s financial position as of one moment in time, it allows someone—like a creditor—to see what a company owns as well as what it owes to other parties as of the date indicated in the heading. This is valuable information to the banker who wants to determine whether or not a company qualifies for additional credit or loans. Others who would be interested in the balance sheet include current investors, potential investors, company management, suppliers, some customers, competitors, government agencies, and labor unions.
We will begin our explanation of the accounting balance sheet with its major components, elements, or major categories:
- Owner’s (Stockholders’) Equity