What Is a Balance Sheet?

A balance sheet is a snapshot of the financial records of a business at a specific point in time. It lists all of the company’s assets and liabilities, plus the amount invested by shareholders. The document can be used with other core statements (like an income statement and a cash flow statement) to conduct fundamental analysis or calculate financial ratios.

A business’s assets include anything that has value, including cash and investments. It can also include facilities and equipment. Assets are classified based on their convertibility and physical existence, with current assets including anything that can be converted to cash within one year, such as short-term deposits and marketable securities, and fixed assets, which are items that will not be converted to cash or sold in the near future, such as property, plant, and equipment.

Liabilities can be grouped into several categories as well. Current liabilities are items that will be paid in the next year, like accounts receivable and taxes payable. Noncurrent liabilities are items that will be paid in more than a year, such as bondholder debt and bank loans. Company owners’ equity, or shareholder’s equity, is the difference between a company’s total assets and its total liabilities. In a small business or sole proprietorship, the owner’s equity is often called net assets.

The basic accounting equation of a balance sheet is assets on the left side, liabilities and shareholder’s equity on the right, and both sides must balance out. A balance sheet can help lenders determine if your business is creditworthy by seeing whether your current assets are greater than your current liabilities. A balanced sheet is a critical tool for any business, so it’s important to prepare it accurately on a regular basis. Different accounting systems and methods of tracking depreciation or inventories can change the numbers on a balance sheet, so it’s important to know how your accountant prepares it. Bilanz Hattingen

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