What is a Balance Sheet?

Definition: The balance sheet is a financial statement that shows what the business is worth at one point in time. A standard company balance sheet has three parts, assets, liabilities and ownership equity or capital.

Often described as a “snapshot of a company’s financial condition”, it is the only financial statement which applies to a single point in time. It is crucial that all potential investors know how to read, use, and analyze this document. The accounts of the balance sheet do not show results, but net values.

How the balance sheet ‘balances’

This report is based on the most basic accounting principle that net worth (owner’s equity) must equal assets minus liabilities.

The statement is divided into two parts, 1) assets and 2) Liabilities & owner’s equity.

As the balance sheet is a snapshot at a single point in time of the company’s accounts - the balance sheet, along with the income and cash flow statements, is an important tool for investors to gain insight into a company and its operations.