1.1.2. The Balance Sheet
The balance sheet is a document that summarizes a company’s assets, liabilities, and shareholders’ equity. On the balance sheet, assets are what the company owns, liabilities are what the company owes, and shareholders’ equity is what’s left over, the company’s net worth. The balance sheet is different from the income statement in that it shows financial information at a particular point in time rather than over a period of time.
The balance sheet is represented by the following equation:
assets = liabilities + shareholders’ equity
This equation demonstrates that at all times a company’s assets must be equivalent in value to the combined value of the company’s liabilities and shareholders’ equity.
Note: the terms liabilities and debt may be used interchangeably on the exam.
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Balance Statement for Northwest Coffees, Inc. (in millions) |
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Assets |
|
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Cash and Cash Equivalents |
7.0 |
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Accounts Receivable |
10.0 |
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Inventory |
3.7 |
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Property, Plant and Equipment |
15.1 |
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Goodwill |
1.2 |
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Patents |
3.2 |
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Total Assets |
40.2 |
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Liabilities |
|
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Accounts Payable |
5.0 |
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Other Current Liabilities |
2.5 |
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Long-term Debt |
12.4 |