Financial Statements - Business: Balance Sheet and Income Statement

The balance sheet is one of the key financial statements issued by publicly owned companies. It summarizes a company's assets, liabilities and shareholders' equity. These three parts of the balance sheet show what a company owns, what it owes and how much shareholders have invested in the company.

The balance sheet is a snapshot in time with its components valued as of a specific date.

The balance sheet is the foundation for the basic accounting equation:

Assets = Liabilities + Shareholders\' Equity

The balance sheet derives its name from the fact that the two sides of it must balance out in accordance with the above formula. As with the personal balance sheet (or statement of financial position), assets and liabilities are listed in order of liquidity or maturity.

Accounts such as cash, inventory and property are on the asset side of the balance sheet, while on the liability side there are accounts such as accounts payable or long-term debt.

Shareholders' equity represents what money investors have contributed to the company, plus earnings retained for investment rather than paid out in dividends or used to repurchase shares. (For more, see the article Breaking Down the Balance Sheet)

The income statement is a key financial statement summarizing a company's financial performance over a specific accounting period, usually either a fiscal quarter or a fiscal year. The income statement displays a company's revenues, expenses, gains and losses over the given accounting period.

Based on these figures, the income statement also reports the company's net income or net loss for the period.

The income statement includes both operating and nonoperating activities. Operating activities pertain to the revenues and expenses of a company's core operations. For instance, the sale of groceries by a supermarket chain is an operating activity. The sale of real estate owned by the supermarket chain would qualify as a nonoperating activity. (For more, see the article Understanding the Income Statement.)

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