What Is a Balance Sheet?
Definition, layout, and a simple example you can follow.
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Quick answerA balance sheet is a financial statement that shows a business’s assets, liabilities and equity at a specific date. It follows the accounting equation: Assets = Liabilities + Equity.
| Also called | Statement of financial position |
|---|---|
| Time frame | A single point in time |
| Topic | Financial accounting · Financial statements |
Balance sheet in plain English
Think of a balance sheet as a photograph of the business on one day. It shows what the business owns (assets), what it owes (liabilities), and what is left for the owners (equity). It is called a balance sheet because both sides must balance.
Worked example
| Balance sheet at 31 December | |
|---|---|
| Assets | |
| Cash | 5,000 |
| Equipment | 4,000 |
| Total assets | 9,000 |
| Liabilities | |
| Bank loan | 3,000 |
| Equity | |
| Capital | 6,000 |
| Total liabilities and equity | 9,000 |
Common mistakes
- Reading it as performance over a year. That is the income statement’s job.
- Forgetting to include the period’s profit in equity.
Frequently asked questions
What is the difference between a balance sheet and an income statement?
A balance sheet shows financial position on one date. An income statement shows revenue, expenses and profit over a period.
What are the main sections of a balance sheet?
Assets, liabilities and equity, usually split into current and non-current items.
Why must a balance sheet balance?
Because it is built on the accounting equation, and every transaction has equal debits and credits.
Keep learning
This page is for general learning. Accounting rules vary by country and standard.