Identify the Basic Formula of a Balance Sheet and Give

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The Answer is The basic formula of a balance sheet is:

**Assets = Liabilities + Owner's Equity**

This equation must always balance out, meaning that the total value of the company's assets must equal the sum of its liabilities and owner's equity. Each component of the balance sheet represents a different aspect of the company's financial position.

**Assets** are resources owned by the company that have economic value and can provide future benefits. Assets are divided into two categories:

1. **Current Assets**: These are assets that are expected to be converted into cash or used up within one year or less. Examples of current assets include:
- **Cash**: Money held in the form of currency or in bank accounts.
- **Inventory**: Goods available for sale to customers.
- **Accounts Receivable**: Money owed to the company by customers who have purchased goods or services on credit.

2. **Fixed Assets**: Also known as non-current assets, these are long-term resources that are tangible and used over a period of time longer than one year. Examples of fixed assets include:
- **Equipment**: Machinery, computers, and other tools used for production or services.

**Liabilities** are obligations that the company owes to outside parties. Liabilities are also divided into two categories:

1. **Current Liabilities**: These are debts or obligations that are due to be paid within one year. Examples of current liabilities include:
- **Accounts Payable**: Money owed by the company to suppliers for goods or services purchased on credit.

2. **Long-term Liabilities**: These are obligations that are due after one year. Examples of long-term liabilities include:
- **Notes Payable/Bank Loan**: Money borrowed from a bank or other financial institution that is to be repaid over a period longer than one year.

**Owner's Equity** represents the owner's claim on the assets of the business after all liabilities have been paid off. It is essentially the net worth of the company. Examples of owner's equity include:
- **Retained Earnings**: Profits that have been reinvested in the business rather than paid out to owners or shareholders.
- **Capital Contributed by the Owner/Entrepreneur**: Money that the owner or entrepreneur has personally invested into the business.

In summary, the balance sheet provides a snapshot of a company's financial position at a specific point in time, showing what the company owns, what it owes, and the owner's share of the company's assets.

Identify the Basic Formula of a Balance Sheet and Give

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