Define: Balance Sheet Item

A balance sheet item is a financial statement that provides a snapshot of a company’s financial position at a specific point in time, including its assets, liabilities, and shareholders’ equity.

Examples of balance sheet items include cash, accounts receivable, inventory, property, plant, and equipment, accounts payable, long-term debt, and shareholders’ equity.

Analyzing balance sheet items is important because it helps investors, creditors, and other stakeholders understand a company’s financial health, liquidity, and solvency.

Total assets on a balance sheet are calculated by adding together all of the company’s current and non-current assets, such as cash, accounts receivable, inventory, and property, plant, and equipment.

Current assets on a balance sheet represent a company’s short-term liquidity and its ability to meet its short-term obligations. Examples of current assets include cash, accounts receivable, and inventory.

Liabilities on a balance sheet are typically classified as current liabilities (short-term obligations) and non-current liabilities (long-term obligations). Examples of liabilities include accounts payable, long-term debt, and deferred tax liabilities.

Shareholders’ equity on a balance sheet represents the amount of capital that has been contributed by the company’s shareholders, as well as the company’s retained earnings.

Total liabilities and shareholders’ equity on a balance sheet are calculated by adding together all of the company’s liabilities and shareholders’ equity. This total should equal the company’s total assets.

Red flags to look for when analyzing balance sheet items include high levels of debt, declining cash reserves, and negative shareholders’ equity, which may indicate financial distress.

A company should update its balance sheet at least annually, but many companies also prepare quarterly or monthly balance sheets to track their financial performance more frequently.