What are the three main components of a balance sheet?

The three main components of a balance sheet are assets, liabilities, and equity.

Assets represent everything a company owns that has value, including cash, inventory, real estate, and accounts receivable. They are categorized into current assets, which can be converted into cash within a year, and non-current assets, which are long-term investments that will provide value over a longer period.

Liabilities reflect what a company owes to others, such as loans, accounts payable, and mortgages. Like assets, liabilities are divided into current liabilities, which must be settled within a year, and long-term liabilities, which are due in more than one year.

Equity represents the ownership interest in the company, encompassing funds invested by shareholders and retained earnings, which are profits that have been reinvested in the business rather than distributed as dividends. It essentially gives insight into the net worth of the company.

Understanding these components is crucial for evaluating a company's financial health and stability, as the balance sheet provides a snapshot of its financial position at a specific point in time.