What are the main components of a balance sheet?

The main components of a balance sheet are assets, liabilities, and equity. This structure provides a snapshot of a company's financial position at a specific point in time.

Assets represent the resources owned by the company, such as cash, inventory, property, and equipment. Liabilities, on the other hand, detail what the company owes to outside parties, including loans, accounts payable, and other obligations. Equity reflects the ownership interest in the company, essentially representing the residual interest in the assets after deducting liabilities.

The balance sheet is based on the accounting equation: Assets = Liabilities + Equity, which emphasizes the relationship between these three components. This equation ensures that the balance sheet remains “balanced,” meaning that the resources of the company (assets) are financed either by borrowing (liabilities) or by the owners' investment (equity).

In contrast, other options include elements that do not belong on a balance sheet. Expenses, revenue, and cash flow are typically discussed in the context of the income statement or cash flow statement rather than on the balance sheet itself.