The balance sheet is a financial statement that presents an organized list of (a) assets, (b) liabilities, and (c) shareholders' equity at a specific point in time.
Assets: The thing the company owns or is owed.
Liabilities: The amounts that the companies owes to others.
Shareholders' equity: What is left over (assets minus liabilities) for the owners of the company.
The balance sheet is also referred to as the statement of financial position.
The balance sheet provides information that is useful for assessing (a) liquidity and (b) solvency.
Liquidity: The company's ability to convert assets to cash in order to pay current liabilities.
Solvency: An assessment of whether the company can pay all of its liabilities.
It is based on book value, which under GAAP is often determined using historical cost. [01]