LeoGlossary: Balance Sheet
The *balance sheet is one of the primary financial statements in accounting.
Shareholder equity is usually placed on its own document but typically accompanies the balance sheet. All reporting companies update their this when filing their quarterly and annual reports.
The basic formula is:
Each side has to balance out. The approach is to total up the assets along with the liabilities. We then can determine the shareholder equity by switching the equation around.
Equity = Assets - Liabilities
The balance sheet is often used when extending credit. This applies to both business and individuals. When they go for a loan, the bank will want to determine the feasibility of payment. Looking at the balance sheet can provide insight into the financial health of the borrower.
Double-entry accounting is the foundation of the balance sheet. Each time an asset it added it either has to have a corresponding liability or increases the shareholder equity. In other words, both sides of the equation move in tandem.
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