The Balance Sheet shows what your company owns (Assets), owes (Liabilities), and the residual value for owners (Equity) at a specific date. The fundamental equation: Assets = Liabilities + Equity. It ALWAYS balances.
Balance Sheet Equation
Assets = Liabilities + Shareholders' Equity
Balance Sheet Components:
- Assets: Cash, Accounts Receivable, Inventory, Equipment, IP
- Liabilities: Accounts Payable, Loans, Deferred Revenue
- Equity: Invested Capital + Retained Earnings (accumulated P&L)
Key Takeaways
- Assets = Liabilities + Equity. Always.
- Assets = what you own. Liabilities = what you owe.
- Equity = investor money + retained earnings.
- Deferred revenue is a liability until you deliver the service.