Day9.Financial term|What is the balance sheet

The balance sheet is actually a table for financial statistics of listed companies, which mainly records the sum of assets, liabilities, equity, and other data.

It can clearly reflect the assets and liabilities of a company, because the identity of assets = liabilities + equity, the left side and the right side of the equal sign should always be the same. The balance sheet is also called the statement of assets and liabilities.

In fact, the balance sheet is a statement of how much money a company has, how much it owes to others, and how much it must give to its shareholders. This kind of information can be used to determine whether a company is generating wealth or not.

Here is an example:

Peter opened a hot-pot restaurant with his friends that has been in operation for a year.

A year later, Peter wants to see the restaurant's balance sheet.

In terms of assets, the restaurant has $1 million in cash, $100,000 worth of ingredients in the warehouse, and $300,000 worth of other assets in the store, bringing the total assets to $1.4 million.

On the liability side, Peter opened his store and borrowed $400,000 from the bank, and the interest on the one-year short-term loan was $20,000. On the raw materials side, there is another $200,000 due to the supplier. The total liability is $620,000.

When they started a business together, Peter contributed $600,000 and his friend contributed $180,000. The total equity is $780,000. The left and right sides are the same, so Peter's balance sheet is correct.

All in all, Peter has $1.4 million and owes someone $620,000.

The balance sheet, cash flow statement, and income statement are collectively referred to as the three financial statements. They are the symbol of a company's strength, vitality, and ability.

When we hear about the Fed shrinking its balance sheet this year, it means shrinking its balance sheet, which means the Fed is going to retain its strength.

Every business has its balance sheet, and so does the Fed, which is shrinking its balance sheet, selling off its various assets for cash, leaving only cash on its books. The essence of the Fed balance sheet reduction: is to reduce the purchase of various assets, to stabilise the Fed's cash flow process. Or, it could sell various assets to increase its cash flow.

To learn more about the balance sheet, click here: US Stock Financial Report For Beginners.