![]() Current portion of long-term debt is the portion of a long-term debt due within the next 12 months.These revenues will be balanced on the assets side, appearing as cash, investments, inventory, or other assets. All revenues the company generates in excess of its expenses will go into the shareholder equity account. If the company takes $8,000 from investors, its assets will increase by that amount, as will its shareholder equity. Its liabilities (specifically, the long-term debt account) will also increase by $4,000, balancing the two sides of the equation. ![]() If a company takes out a five-year, $4,000 loan from a bank, its assets (specifically, the cash account) will increase by $4,000. That's because a company has to pay for all the things it owns (assets) by either borrowing money (taking on liabilities) or taking it from investors (issuing shareholder equity). \textĪssets = Liabilities + Shareholders’ Equity The balance sheet adheres to the following accounting equation, with assets on one side, and liabilities plus shareholder equity on the other, balance out: The income statement and statement of cash flows also provide valuable context for assessing a company's finances, as do any notes or addenda in an earnings report that might refer back to the balance sheet. Investors can get a sense of a company's financial well-being by using a number of ratios that can be derived from a balance sheet, including the debt-to-equity ratio and the acid-test ratio, along with many others. For this reason, the balance sheet should be compared with those of previous periods. It cannot give a sense of the trends playing out over a longer period on its own. The balance sheet provides an overview of the state of a company's finances at a moment in time. ![]() Investopedia / Katie Kerpel How Balance Sheets Work
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