A balance sheet is a document that states a company’s financial position during a certain time period. It is a summary that includes assets, liabilities and ownership equity starting from a specific date. It is often regarded as a picture or a snapshot of a company’s financial health. There are four basic financial statements, but the balance sheet is the only one that refers to a single point in time.
A balance sheet for a company comes in three separate parts. It will have assets, liabilities and ownership equity. The categories for assets will usually be listed in order of liquidity. After assets, you will have liabilities. When you subtract the company’s liabilities from the company’s assets then you come up with equity or the net assets.
It is also possible to look at this formula from a different vantage point. You can say that assets are actually equal to liabilities and then add owner’s equity. Visually on the balance sheets, you would see on the assets in one section and then you see liabilities and net worth in another section. These two sections will be “balancing” each other.
You can see the values of each account in the balance sheet in a system referred to as the double entry bookkeeping system.
If a business only works using cash then it can measure its profits by taking out the entire bank balance at the end of the period and add any cash that they may have in hand.