Understanding a Balance Sheet

Video Transcript

"A balance sheet is one of the financial statements required by GAP. The major components of the balance sheet include the asset section, the liability section and the shareholders equity section. Underlying each of these line items on a balance sheet, will be a General Ledger balance or a Financial Account balance, and what it reflects are transactions during the period. The balance sheet itself is a financial picture of the company at a point in time. And you arrive at those balances by taking those underlying General Ledger or Financial Account balances. And adding up all the ins and outs of the transactions during the period. For example, the cash account is comprised of what you started with, any cash you received during the period from customers, cash you paid out during the period for payroll and for your vendors. And then the ending balance will then be transfered to your balance sheet, under cash. So reading a balance sheet will tell you, how much cash is on hand, like our example just now. How much the company has in Accounts Receivable from it's customers, how much a company has on account with it's vendors. If there is any debt on hand and how much is outstanding. And of course, then the residual, which is shareholders equity. And a good way to evaluate how well a company is doing is, to compare these balances to prior periods or to companies in the similar industry, in a similar size. And that will give you a better idea of how all the companies are doing."