The Basics of a Balance Sheet explained from scratch 🧮➕➖➗

In this thread we will talk about -

1. What is Balance Sheet
2. How Balance Sheet is made?
3. Each line items of Balance Sheet
4. Why it is important

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What is a Balance Sheet:

The balance sheet displays the company’s total assets and how the assets are financed, either through debt or equity. It gives an idea of the financial health of an organization. It is like a snapshot of the financial position at a specified time.

Balance sheet consists of 3 components:
1⃣Assets
2⃣Equity
3⃣Liabilities

The balance sheet is based on the fundamental equation: Assets = Equity + Liabilities.

This is also the golden rule of Finance!

Now let’s dig into each line item on the Balance sheet and understand why the Balance sheet always tallies.

Let’s see how actual balance sheet looks like:

The first part of the BS is Assets.

Assets are those resources or things which the company owns. They can be divided into current as well as non-current assets or long term assets.

Non-current assets: Assets which cannot be easily converted to cash. Like buildings, machinery.