The Balance Sheet

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The balance sheet is a snapshot in time of what the company has and how it got it:
assets, liabilities, and shareholders’ equity.

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The balance sheet is a snapshot in time of what the company has and how it got it. There are three categories on the balance sheet. You have your assets, your liabilities, and your shareholders’ equity. Assets are what you have. Liabilities and shareholders’ equity are how you got them. So, a liability: did you borrow money? Did you borrow money from a bank? Did you borrow money from a vendor? And shareholders’ equity is what you, as the owner, or your investors, put into the company. The shareholders’ equity is also going to include retained earnings: what the company has earned through the course of running its business and then reinvested in the business.

So it’s called the balance sheet, and that’s because it’s always in balance. Assets always equal liabilities plus shareholders’ equity. What you have, your assets, and how you got them. Did you borrow the money? Or did you earn the money? Or did you get the money through investments? For every asset you have, there’s going to be an associated liability or owners’ investment toward those assets.

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