Balance Sheet

What is a balance sheet?

A balance sheet is a financial report that shows your business's financial position on a specific date—like a photograph of your finances. Unlike a profit and loss statement that shows activity over a period, the balance sheet captures where things stand right now.

It's called a "balance" sheet because it follows a simple equation that must always balance: Assets = Liabilities + Equity.

The three parts of a balance sheet

Every balance sheet has three sections:

• Assets — What your business owns: cash, equipment, vehicles, accounts receivable (money clients owe you), inventory
• Liabilities — What your business owes: loans, accounts payable (bills you owe), credit card balances
• Equity — What's left over after subtracting liabilities from assets—essentially your ownership stake in the business

Why balance sheets matter

Balance sheets help you understand your business's overall financial health. Banks require them for loan applications. They show whether you have enough assets to cover your debts and how much of your business you truly own versus how much is financed by others.