The Balance Sheet
The balance sheet is a measure of a company’s financial position at a specific point in time. The balance sheet’s performance is broken up into three major categories: assets, liabilities, and shareholders’ equity; the company’s total value of assets must always equal the sum of its liabilities and shareholders’ equity.
An asset is a resource held to produce some economic benefit. Examples of assets are cash, inventory, accounts receivable, and property. Assets are separated into two categories: current assets and noncurrent assets.
A current asset is an asset whose economic benefit is expected to come within one year. Examples of common current assets follow.
Cash and Cash Equivalents
Cash is currency on hand. Cash equivalents are assets that are readily convertible into cash, such as money market holdings, short-term government bonds or Treasury bills, marketable securities, and commercial paper. Cash equivalents are often considered as cash because they can be easily liquidated when necessary.
Accounts receivable (AR) are sales made on credit. The revenue for the sale has been recognized, but the customer did not pay for the sale in cash. An asset is recorded for the amount of the sale and remains until the customer has paid. If AR increases by $100, for example, then we must have booked a sale. So, revenue ...