Balance SheetA balance sheet is also called a statement of financial position. The balance sheet gives a summary of the company's liabilities, assets and equity at any given point in time. The balance sheet is generally prepared at the end of a financial year and is the only statement among the three basic financial statements that applies at any point in a company's calendar year. The balance sheet is generally written systematically. As stated earlier, it has three parts and the first part of the balance sheet is assets. Assets are listed in order of liquidity, from most liquid to least liquid. The assets are then followed by the liabilities. The difference between total assets and total liabilities gives net assets, or the net worth of a company. This is consistent with the accounting equation where net worth should equal assets minus liabilities. The balance sheet can also be looked at from a different angle. The total assets on a balance sheet must equal the equity added to the liabilities. This reflects how the assets were financed, i.e. either through equity or through borrowing money (liabilities). Assets are usually placed in one section while liabilities and net worth (capital) are placed in the other section if the balancing is a two-section balancing. As such, a balance sheet is used for the sole purpose of financial analysis and reporting as part of the financial statement suite. Income Statement An income statement refers to a document produced on a monthly or annual basis. It gives a report on the profits of a company by showing all the revenue earned by the company as well as all the expenses that the company incurs in generating...... middle of paper ...... usually called the company's value book and it comes from two sources considered to be main. The first source, i.e. the initial source, is the funds initially invested in the business, including additional investments made later. The second source is retained earnings that the company can accumulate over time through its operations. After examining what equity is, we will examine its different components, or what it is made up of. Equity includes:1. Preferred shares: This is the investment made by preferred shareholders. They have priority over ordinary shareholders and receive a dividend which takes priority over any distribution paid to ordinary shareholders. It is recorded at its face value.2. Common stock is the investment made by shareholders. It is valued at the declared value.