3.1.1. Balance Sheet

#cfa-level-1 #fra-introduction #reading-22-financial-statement-analysis-intro

The balance sheet (also called the statement of financial position or statement of financial condition) presents a company’s current financial position by disclosing the resources the company controls (assets) and its obligations to lenders and other creditors (liabilities) at a specific point in time. Owners’ equity represents the excess of assets over liabilities. This amount is attributable to the company’s owners or shareholders. Owners’ equity is the owners’ residual interest in (i.e., residual claim on) the company’s assets after deducting its liabilities.

The relationship among the three parts of the balance sheet (assets, liabilities, and owners’ equity) can be expressed in the following equation form: Assets = Liabilities + Owners’ equity. This equation (sometimes called the accounting equation or the balance sheet equation) shows that the total amount of assets must equal or balance to the combined total amounts of liabilities and owners’ equity. Alternatively, the equation may be rearranged as follows: Assets – Liabilities = Owners’ equity. This formulation emphasizes the residual claim aspect of owners’ equity. Depending on the form of the organization, owners’ equity may be referred to as “partners’ capital” or “shareholders’ equity.”


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