The balance sheet is important to business operations in general. It provides a snapshot of what the company owns and what they owe to outside sources. The balance sheet is also known as a profit and loss account. By either name, this special form of financial statement provides great insight into an organizations holdings.
Breaking Down the Balance Sheet
To clarify, a balance sheet shows how much money the organization has, how much property they own, and most importantly, how much money they owe. This is beneficial for outside sources to view bankers, investors, and even potential creditors.
The balance sheet is broken down into several sections. Each section is grouped by liquidity that is, how easily the particular asset can be converted into cash. The first section is short term assets. Within this category, cash is listed first, followed by near cash assets. Near cash assets are assets that can be easily converted into cash. Accounts receivable, money that people owe the organization, is also listed in this category.
The next category is the long term assets. These would include equipment, property, and buildings, along with long term...
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