What is a balance sheet?


The balance sheet is, simply put, a demonstration of what the company owns and what it owes on a specific day. This document is sometimes called a ‘statement of financial position’.  Items that the business owns are called assets, and can include cash and investments, accounts receivable (money owed by clients), and different types of equipment. Amounts that the business owes are called liabilities, and can include accounts payable (or bills owing to suppliers), and loans to be paid.  Why is this document called a ‘balance sheet’? The assets are equal to the liabilities plus the owner’s equity (or shareholders’ equity, in the case of corporations). The owner’s equity section of the balance sheet consists of the total draws and contributions of the owner to date, plus the accumulated profits and losses of the business since the day it opened its doors (this is called ‘retained earnings’).

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