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theory1 min readLesson 7.3

Balance Sheet basics

Finance — Read the Numbers · 20 min

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.