Balance Sheet Explained

What is a Balance Sheet?

A balance sheet is a financial statement that reports a company's assets, liabilities, and shareholder equity. It provides a snapshot of a company's finances (what it owns and owes) as of the date of publication.

The balance sheet is another key financial document, but it's a snapshot of a company’s financial position at a specific point in time, rather than over a period like the income statement. It shows what the company owns (assets), what it owes (liabilities), and the value of the company’s equity (what’s left after liabilities are subtracted from assets).

It follows the basic formula:

Assets = Liabilities + Equity

Assets: These are things the company owns, like cash, inventory, buildings, or equipment. They’re divided into current assets (things that can be quickly converted to cash, like inventory or receivables) and non-current assets (things that are more long-term, like property or patents).

Liabilities: These are the debts the company owes, such as loans, accounts payable, or taxes owed. Similar to assets, they’re broken down into current liabilities (due within a year) and non-current liabilities (due in more than a year).

Equity: This represents the owners’ stake in the company, or the residual value left after subtracting liabilities from assets. It includes things like stock, retained earnings (profits kept in the business), and other investments by owners.

The balance sheet is called that because, at any given moment, the company's assets should equal the combined total of its liabilities and equity. It’s a great tool for understanding a company’s financial stability and how it’s financing its operations.

Income & Expenses are not reported on in the balance sheet. Learn about the Income Statement as a report on profit/loss.