The balance sheet is a financial statement that summarizes the assets, liabilities and equity of a company at a specific point in time. These three segments of the balance sheet give investors an idea of ​​what the company owns and owes, as well as how much shareholders are investing. Say no to plagiarism. Get a Custom Essay on “Why Violent Video Games Should Not Be Banned”?Get the Original EssayThe balance sheet adheres to the following formula: Assets = Liabilities + Equity. The balance sheet gets its name because the two sides of the equation above – assets on one side and liabilities plus equity on the other – must balance. It's intuitive: a company must pay for everything it owns (assets) either by borrowing money (assuming debt) or taking it from investors (issuing equity). For example, if a business takes out a five-year $4,000 loan from a bank, its assets – including the cash account – will increase by $4,000; its liabilities – specifically the long-term debt account – will also increase by $4,000, balancing both sides of the equation. If the company takes $8,000 from investors, its assets will increase by that amount, as will its equity. All income generated by the company in excess of its liabilities will be paid into the equity account, representing the net assets held by the owners. This income will be balanced on the asset side, appearing in the form of cash, investments, inventory or any other asset. Assets, liabilities, and shareholders' equity are each made up of several smaller accounts that detail the financial specifics of a business. These accounts vary widely by industry, and the same terms can have different implications depending on the nature of the business. However, generally speaking, investors are likely to encounter a few common elements. Within the assets segment, accounts are ranked from top to bottom in order of liquidity, that is, how easily they can be converted into cash. They are divided into current assets, those that can be converted into cash in one year or less; and non-current or long-term assets, which cannot. Here is the general order of accounts within current assets: · Cash and cash equivalents: The most liquid assets, these may include short-term Treasury bills and certificates of deposit, as well as hard currency · Marketable securities : equity and debt securities for which there is a liquid market · Trade receivables: money that customers owe to the company, possibly including an allowance for doubtful debts (an example of a contra account), since a certain proportion of customers can be expected not to pay · Inventory: goods available for sale, valued at the lower of cost or market price. Prepaid expenses: Representing value already paid, such as insurance, advertising contracts or rent. Long-term assets include the following: · Long-term investments: securities that will not or cannot be liquidated within the next year. · Fixed assets: These include land, machinery, equipment, buildings and other durable assets, which are generally capital intensive. · Intangible assets: these are non-physical, but nevertheless valuable, assets, such as intellectual property and goodwill; in general, intangible assets are only recorded on the balance sheet if they are acquired and not developed internally; their value can therefore be largely underestimated – by not including a globally recognized logo, for example – or just as greatly overestimated..