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It shows each category of the assets owned, such as:

· cash

· accounts receivable

· inventory

· equipment

It also shows each category of liabilities involved, such as:

· accounts payable

· payroll tax liabilities

· loans payable

The Balance Sheet can helps answer the questions:

· Where did the profit go?

· Did cash increase?

· Did loans decrease?

· Did the owner draw funds out of the business?

· Was cash used for fixed assets?

The balance sheet allows us to understand basic things about a business. Comparing balance sheet year-to-year shows the financial structure and stability of the business.