Costco owed more within a year than it owned in fiscal 2024

The equation a balance sheet must satisfy

A balance sheet is a statement of financial position: what a business owns, what it owes, and the owners' claim on the difference, all measured at one moment.¹ It reports the instant it was drawn, the last day of the fiscal year. What changed during the year only shows up by setting two of them side by side, one year-end against the next.

At the close of fiscal 2025, August 31, 2025, Costco's balance sheet lists $77,099 million of total assets, $47,935 million of total liabilities, and $29,164 million of total equity.² The last two add up to the first: 47,935 plus 29,164 equals 77,099. That equality, assets equal liabilities plus equity, is not a coincidence of Costco's finances. It is the definition of the statement. Liabilities and equity are the two claims on everything the assets column lists, one belonging to lenders and suppliers and one to owners, and together they must account for the whole of it.¹ A year earlier, September 1, 2024, the same identity held: $46,209 million of liabilities plus $23,622 million of equity equal $69,831 million of assets.² Every balance sheet balances this way, by construction. It is evidence the statement was assembled correctly, not evidence the business is healthy.

Inventory, receivables, and the property Costco owns

An asset is something the business acquired in a past transaction that carries future economic value the business can measure: cash, inventory, equipment, a receivable are the textbook examples.¹ Merchandise inventories qualify because Costco has paid for the goods but not yet sold them, so the future value the test requires, the cash a sale will bring, still sits with Costco.¹ Sell the same goods and the test fails: the future value now belongs to the customer. The item leaves the assets column the moment the sale is booked, and its cost reappears as cost of goods sold.

On the balance sheet, merchandise inventories were $18,647 million at the end of fiscal 2024 and $18,116 million at the end of fiscal 2025, a decline of $531 million.² Costco carries its U.S. inventory at the lower of cost or market on a LIFO basis, a policy that cut fiscal 2025's reported inventory by a $142 million charge.³ Lesson 1 read a different number for the same year: the cash flow statement's own line said falling inventory released $559 million of cash.⁴ The two move together, but not to the dollar: the cash flow statement's changes-in-operating-assets line excludes effects the balance sheet folds in elsewhere, translation and reclassification among them. Checking Costco's own numbers turns up the same direction, not an exact match.

The balance sheet also lists $3,203 million of receivables, net at the end of fiscal 2025, up from $2,721 million a year earlier, an asset Lesson 1 skipped because it never surfaced in the cash reconciliation by name.² That was not an oversight. Costco's receivables are not the customer credit a typical retailer books; the filing describes them as vendor, credit card incentive, reinsurance, and third-party pharmacy receivables, money owed to Costco by other businesses, not by shoppers.⁵ The $482 million rise has no line of its own on the cash flow statement either. It is absorbed into the statement's catch-all "other operating assets and liabilities, net," which moved $801 million in fiscal 2025 alongside several other accounts.⁴ The balance sheet is where this account lives. This year's cash flow statement never named it.

Property and equipment is the third asset behind the reconciliation. The balance sheet shows only its net figure, $31,909 million at the end of fiscal 2025, and a supporting schedule in the same filing breaks that number apart.² Costco's warehouses, land, and equipment cost $50,840 million to buy, gross. Straight-line depreciation over each asset's estimated useful life has already charged $18,931 million of that cost to the income statement.³ The difference, $31,909 million, is what is left to depreciate.⁶ Lesson 1's depreciation and amortization add-back, $2,426 million for fiscal 2025, is one year's slice of that $18,931 million running total. The running total itself grew by only $1,013 million this year, from $17,918 million to $18,931 million.⁶ Retirements remove old assets' accumulated depreciation along with their original cost, and the cash-flow figure also covers amortization beyond property and equipment.⁴ A year's depreciation expense and a year's change in accumulated depreciation answer different questions, and the balance sheet only answers the second one.

Payables and the fees Costco has not yet earned

A liability is money the business owes because of a past transaction, or money it has already received but has not yet earned.¹ Deferred membership fees sit on this side because Costco already holds the member's cash but has not yet delivered the year of membership it was paid for, the second half of that test.¹ Flip the fact and the liability empties immediately. Once the year elapses, the fee is earned, and the same dollars reappear on the income statement as membership fee revenue, not because cash changes hands again but because the obligation is gone. Deferred membership fees stood at $2,854 million at the end of fiscal 2025, up from $2,501 million a year earlier.² Lesson 1 named that same $2,854 million figure without saying which statement it came from. This is that statement.

Accounts payable is the more familiar liability: what Costco owes its suppliers for goods already delivered but not yet paid for.¹ The balance sheet lists it at $19,783 million at the end of fiscal 2025, up $362 million from $19,421 million a year earlier.² Lesson 1's cash flow statement reported a $404 million increase for the same line, close but not identical. The gap has the same source as the inventory mismatch: the cash flow statement's own change excludes reclassifications the balance sheet folds in elsewhere.⁴ Both statements agree Costco stretched its supplier payments further in fiscal 2025, just not on the exact size of the move.

What is left over once every other claim is paid

Equity is what remains: the reported assets minus the reported liabilities, the owners' claim on everything left once every other claim is settled.¹ Costco's equity rose from $23,622 million to $29,164 million in fiscal 2025, a gain of $5,542 million, and most of that increase has a name Lesson 1 already taught: net income.² Retained earnings is the equity account that accumulates profit not paid out. It began the year at $17,619 million and added the $8,099 million of net income Lesson 1 walked to cash. Two subtractions followed, $885 million spent buying back Costco's own stock and $2,183 million paid out as dividends, leaving $22,650 million at year end.⁷ It is the same net income, doing a different job on each statement. On the cash flow statement, a set of adjustments turned it into cash. On the balance sheet, net of what owners take out, it grows what they own.

Divide equity by the 443,237,000 shares outstanding at year end and each share's book value works out to $65.80, up from $53.30 twelve months earlier.⁸ Book value is what the accounting records say a share is worth: assets at cost, less depreciation, less every liability, divided by the share count. A market price answers a different question, what a buyer expects the business to earn in years the balance sheet has not yet lived. The two numbers diverge for that reason.

Current assets against current liabilities, a year apart

Current assets are what Costco expects to turn into cash within a year: cash, receivables, inventory, and other near-term items. Current liabilities are the claims due within the same year: payables, deferred membership fees, and other short-term obligations. Working capital is current assets minus current liabilities.⁹

A negative number in that bottom row looks like trouble: a business owing more within a year than it can convert to cash within the same year. For most companies it would be. AccountingCoach's own framing is that a working-capital figure alone does not say whether a business is healthy; the answer depends on inventory speed and on suppliers' and customers' terms.⁹ Costco fits the case where negative working capital is not a warning. It sells for cash and card and collects almost no customer credit, so its receivables, $3,203 million, mostly vendor and pharmacy money, are not the reason for the shortfall.⁵ Its members hand over a year's membership fee before Costco delivers a year of membership, funding part of the current-liabilities side with cash already banked.² A retailer that turns inventory fast and gets paid before it pays its own suppliers can run, for a stretch, on suppliers' and members' money instead of its own. Fiscal 2024's negative working capital was that arrangement, not trouble.