The Balance Sheet

The balance sheet is a snapshot of the firm. It is a convenient means of organizing and summarizing what a firm owns (its assets), what a firm owes (its liabilities), and the difference between the two (the firm's equity) at a given point in time. Figure 2.1 illustrates how the balance sheet is constructed. As shown, the left-hand side lists the assets of the firm, and the right-hand side lists the liabilities and equity.

Assets: The Left-Hand Side

Assets are classified as either current or fixed. A fixed asset is one that has a relatively long life. Fixed assets can be either tangible, such as a truck or a computer, or balance sheet

Financial statement showing a firm's accounting value on a particular date.

24 PART ONE Overview of Corporate Finance

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