A statement of assets and liabilities that summarizes a company's assets, liabilities, and shareholders' equity at a specific point in time. These three balance sheet segments give investors an idea of what the company owns and owes, as well as the amount invested by shareholders.
The balance sheet must follow the following formula:
Assets = Liabilities + Shareholders' Equity
Each of the three segments of the balance sheet contains many accounts that document the value of each. Accounts such as cash, inventory, and property are on the asset side of the balance sheet, while on the liability side there are accounts such as accounts payable or long-term debt. The exact accounts on a balance sheet will vary by company and industry because there are no pre-made templates that accurately account for the differences between different types of businesses.
It is called a balance sheet because the two sides balance. This makes sense: a company has to pay for all the things it has (assets) by either borrowing money (liabilities) or receiving it from shareholders (shareholders' equity).
The balance sheet is one of the most important pieces of financial information issued by a company. It is a snapshot of what a company owns and owes at that point in time. On the other hand, the income statement shows how much revenue and profit a company has generated over a given period. No one statement is better than the other - instead, net worth reports are constructed to be used together to present a complete picture of a company's finances.