Balancing a balance sheet is arithmetic. Pricing what's on it is judgment.

One pile, counted from two directions

A balance sheet reports one instant, not a stretch of time. Assets are what a company holds on that day: cash, inventory, buildings, equipment, anything of value.¹ Every one of those things was paid for somehow, and there are only two ways to pay for anything: borrow it or own it outright. A liability is a claim a lender or a supplier holds against what the company has. Equity is the claim its owners hold on what is left once every lender and supplier is paid off.¹ Add the two claims together and the total has to equal what the company holds. There is nowhere else anything on the balance sheet could have come from. That is the accounting identity: assets equal liabilities plus equity.¹ It holds because it is the same pile counted from two directions, once by what it is and once by who has a claim on it.

Costco's own numbers make the match concrete. At the close of fiscal 2025, Costco held $77,099 million of assets. Claims other than the owners' totaled $47,935 million. What was left for shareholders was $29,164 million.²

The same match holds even as the pile changes size. A year earlier, at the close of fiscal 2024, Costco's balance sheet totaled $69,831 million: $46,209 million of liabilities against $23,622 million of equity.² Total assets grew $7,268 million over the year. Liabilities supplied $1,726 million of that growth, about a quarter. Equity, the owners' claim, supplied the rest: $5,542 million, about three-quarters.² The identity holds at the level of one year's change for the same reason it holds at any instant. Whatever Costco added to what it holds, some lender or some owner supplied it. The ledger has no third place a dollar could come from. Call the statement a balance sheet, or, as international accounting rules call the identical document, a statement of financial position: every version rests on the same two-sided count.³

Not every liability is a debt

Receivables, inventory, and payables already have definitions from earlier in this course: money a customer owes the company, goods bought but not yet sold, money the company owes its own suppliers. A balance sheet adds one more fact to each of them: when the claim must be settled. Current assets are those a company expects to turn into cash within a year. Current liabilities are claims it expects to pay within a year. Everything else is long-term.¹ The split matters because it is how a filing signals liquidity, whether what a company can turn into cash soon covers what it owes soon.⁴

Both a supplier's invoice and a member's prepaid renewal sit inside that $37,108 million of current liabilities, and both count as due within the year. They are not the same kind of promise. Accounts payable, $19,783 million, is a promise to send cash: money for goods Costco already has in its warehouses. Deferred membership fees, $2,854 million, is a liability for cash Costco already received, owed back not in cash but in warehouse access a member has already paid for.² Reading a claim's timing tells you when it clears the balance sheet. Reading its kind tells you what actually clears it.

The $994 million that doesn't get its own line

A number on a balance sheet is a company's book value for that item: what its own accounting records say, not what the item would fetch if sold today.⁵ Goodwill is the clearest case of book value manufactured rather than observed. It is entered onto a balance sheet only when a company buys another one for more than the reassessed value of everything in the deal that can be named individually: buildings, inventory, trademarks. The difference becomes an asset simply because the books must still balance.⁶

Costco carries $994 million of it, unchanged across three straight fiscal years, 2023 through 2025.⁷ The whole balance traces to one deal. In March 2020, Costco paid roughly $1.0 billion for Innovel Solutions, a delivery and installation business. About $940 million of that price became goodwill: the part that matched no warehouse, no truck, no dollar of inventory Innovel actually owned.⁷

None of that $994 million sits on a line of its own. Costco folds it inside "other long-term assets," a single $4,085 million bucket that also holds operating leases and odds and ends.² The face of the balance sheet shows one bigger number and nothing more. The goodwill only surfaces three schedules deep, in the note that breaks it down by segment: $953 million in the United States, $26 million in Canada, $15 million in other international operations.⁷ A filing can carry that kind of number for years, unchanged, without ever giving it a line of its own.

Property and equipment, net, is a more visible version of the same problem. Costco carried $31,909 million of it at the close of fiscal 2025, up from $29,032 million a year earlier.² Every dollar of that line is what Costco paid for a warehouse, a truck, or a piece of equipment, minus the depreciation charged against it since. Nothing in that arithmetic asks what the same property would sell for today. Historical cost accounting was never built to answer that question. It answers a narrower one: what did this cost, and how much of that cost is left to charge off.⁸ For any company holding real estate bought years ago, the price paid and the price it would fetch now are free to drift apart in either direction, and the balance sheet gives no signal which way.

Property is the visible half of the problem. The bigger half is what a balance sheet never lists in the first place: a brand a company built rather than bought, a customer base earned rather than paid for, know-how developed in-house. Accounting records a purchased intangible as an asset, not one a company grew itself. A company that built its own strongest assets can carry almost none of them on the books at all.⁹ Across the S&P 500, intangible assets now account for roughly 90 percent of total market value.⁹ Some of that is goodwill like Costco's, a number created once, at the moment of a purchase, and then held constant for years. The rest was often never entered on a balance sheet to begin with.