A balance sheet is a financial statement that provides a snapshot of a company's assets, liabilities, and equity at a specific point in time. It shows what a company owns, owes, and the value left for shareholders.
Why is a balance sheet important?
Startups and businesses use a balance sheet to:
How often is a balance sheet prepared?
Companies typically prepare balance sheets on a quarterly, bi-annual, or annual basis. Startups may review them more frequently to monitor progress and address financial challenges quickly.
What is the difference between a balance sheet and an income statement?
While a balance sheet shows a company’s financial position at a specific point in time, an income statement reflects the company’s performance (revenue, expenses, and profit) over a period of time.
How can startups use a balance sheet to attract investors?
A balance sheet shows a startup's financial health, including its assets, liabilities, and equity. Investors use this information to assess financial stability, growth potential, and how effectively the startup is managing resources. A strong balance sheet can build investor confidence and demonstrate the startup’s ability to manage funds responsibly.
What’s the difference between current and non-current assets on a balance sheet?
Current assets are short-term assets, such as cash or inventory, that are expected to be converted into cash within a year. Non-current assets, like property, equipment, or patents, are long-term assets used to generate value over a longer period.
Why must a balance sheet always balance?
A balance sheet balances because of the accounting equation: Assets = Liabilities + Equity. This ensures that every resource (asset) a company owns is funded by either debt (liabilities) or the owners' investment (equity). If it doesn’t balance, it indicates an error in the financial records.
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