Owners' equity, referred to as shareholders' equity in a publicly traded company, is the amount of money initially invested into the company plus any retained earnings and it represents a source of funding for the business.
It is important to note that a balance sheet is a snapshot of the company's financial position at a single point in time.
Current liabilities are the company's liabilities that will come due, or must be paid, within one year.
Depending on the company, the exact makeup of the inventory account will differ.
For example, a manufacturing firm will carry a large amount of raw materials, while a retail firm carries none.
So for the asset side, the accounts are classified typically from most liquid to least liquid.
For the liabilities side, the accounts are organized from short to long-term borrowings and other obligations.
A balance sheet, also known as a "statement of financial position," reveals a company's assets, liabilities and owners' equity (net worth).
The balance sheet, together with the income statement and cash flow statement, make up the cornerstone of any company's financial statements.
Such assets classes include cash and cash equivalents, accounts receivable, and inventory.
Cash, the most fundamental of current assets, also includes non-restricted bank accounts and checks. Accounts receivables consist of the short-term obligations owed to the company by its clients.
With a greater understanding of the balance sheet and how it is constructed, we can look now at some techniques used to analyze the information contained within the balance sheet.