How to Read and Interpret Financial Statements

4

The Balance Sheet: Liabilities and Owners’ Equity

Learning Objectives By the end of this chapter, you should be able to: • Distinguish between current and long-term liabilities. • Identify various types of liabilities. • Identify the various components of equity on the balance sheet.

INTRODUCTION

The assets of a company are financed by liabilities and owners’ equity. In other words, assets are acquired with funds generated via debts or with owners’ investment. Current liabilities provide some of the working capital necessary to run a business day to day. Long-term liabilities and owners’ equity provide the permanent base of asset financing. ...