A photograph of the business taken on the last day of a period. The balance sheet lists everything the business owns and everything it owes, and the two sides always equal each other.
Definition
Balance Sheet - a financial statement that reports a business's assets, liabilities and equity at a single point in time. It answers the question "what does the business own and owe right now?"
Formula
Assets = Liabilities + Equity Equity = Assets − Liabilities
Common uses
- Liquidity check - how much of the assets is cash versus tied up
- Solvency check - can the business cover what it owes
- Net worth - whether equity is growing year over year
Watch out
A healthy profit and loss statement can sit next to a fragile balance sheet. Strong profit with almost no cash, a pile of slow accounts receivable, or heavy short-term debt are all things the profit line will not show you - which is exactly why a second read matters.
Related terms
For the full walkthrough, read How to Read Your Financial Statements and browse Financial Fundamentals.