Also known as a statement of financial position, the balance sheet is used to show the financial health of a company at a particular point in time. The balance sheet consists of assets, liabilities, and owner’s equity in the company. It is one of the four key financial statements issued by public companies.
Assets = Liabilities + Owner’s Equity
As the name implies, accountants maintain ledger information so the two sides of the above equation always remain “in balance.” When constructing this statement, the order of items listed is assets, liabilities, and then owner’s equity. Subsections include additional detail, and are typically listed in order of decreasing liquidity. For example, current assets are the first subsection appearing in this statement.
Larger corporations may prepare this document at the end of each month; enabling management to have an understanding of the corporation’s financial position. Quarterly and annual reports are commonplace