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Financial Statements

Last updated on May 3, 2023

Understanding a Balance Sheet and Income Statement

The balance sheet is a financial statement that provides a snapshot of a company’s net worth by displaying its assets, liabilities, and shareholder’s equity.

Assets refer to valuable items that a company owns and can utilize to generate revenue, such as equipment, inventory, property, and intangible assets like patents and trademarks.

Liabilities are the amounts owed by the company, including expenses, loans, payroll, and obligations for future products.

Shareholder’s Equity represents the company’s value and is calculated by subtracting liabilities from assets.

Assets are listed based on their liquidity, with current assets being more easily convertible to cash compared to long-term assets like trademarks or property. Liabilities are listed based on their due dates, with bonds and loans being common examples.

The Income Statement details the company’s revenue and expenses over a period, typically issued quarterly or annually. The bottom line of the statement shows the Net income or Net loss. Hence the term “Bottom Line”.

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