The Balance Sheet as a Snapshot

The, income, statement, covers, a, stretch, of, time., The, balance, sheet, does, the, opposite., It’s, a, photograph, taken, at, one, instant,, usually, the, last, day, of, the, period., Everything, on, it, is, a, stock,, not, a, flow., Confusing, the, two, is, the, most, common, error, students, make, when, they, first, see, both, statements, together.

Assets, are, what, the, business, controls., Current, assets, are, expected, to, turn, into, cash, within, a, year., This, includes, cash, itself,, accounts, receivable, (the, money, customers, owe),, and, inventory., Non-current, assets, last, longer., Think, property,, equipment,, vehicles,, and, patents.

Liabilities, are, what, the, business, owes., Current, liabilities, must, be, paid, within, a, year., Examples, include, accounts, payable,, short-term, borrowing,, and, accrued, wages., Non-current, liabilities, extend, beyond, a, year,, like, a, mortgage, or, a, multi-year, loan.

Equity, is, what, owners, would, have, left, if, every, asset, was, sold, at, book, value, and, every, liability, was, settled., It, isn’t, a, pot, of, money, sitting, somewhere., A, profitable, company, can, have, substantial, equity, and, no, cash, at, all.

Two, key, points, stand, out., Working, capital, is, current, assets, minus, current, liabilities., It, shows, if, the, business, can, meet, its, obligations, over, the, next, year, using, next, year’s, cash., If, working, capital, is, persistently, negative,, it, means, short-term, bills, are, being, covered, by, something, other, than, short-term, assets., That’s, a, fragile, position.

And, remember, book, value, is, not, market, value., Assets, are, usually, recorded, at, what, was, paid,, minus, depreciation,, not, their, current, worth., A, warehouse, bought, in, 1994, might, have, a, figure, that, doesn’t, reflect, its, value, today., Also,, a, brand, built, over, decades, may, not, even, show, up, on, the, balance, sheet., It’s, a, record, of, transactions,, not, an, asset, valuation.