A balance sheet is a financial statement that reports an entity’s assets, liabilities, and equity at a specific point in time.
It’s the accounting equation — Assets = Liabilities + Equity — expressed in report form. The left side (or top, depending on format) lists what the entity owns: cash, receivables, inventory, equipment, and other assets. The right side (or bottom) lists what the entity owes to creditors (liabilities) and what remains for the owners (equity). The two sides must balance; if they don’t, there’s an error somewhere in the books.
Assets typically appear in order of liquidity, starting with cash and ending with long-term items like property. Liabilities follow a similar pattern, with current obligations listed before long-term debt. Equity captures the owners’ residual interest — original contributions plus accumulated earnings minus withdrawals. Every transaction recorded through double-entry bookkeeping affects at least two accounts on the balance sheet, or one balance-sheet account and one income-statement account, keeping the equation in balance at all times.
Related terms
- Account — an individual category (such as cash or accounts payable) used to classify transactions.
- Double-entry bookkeeping — the system that ensures every transaction has equal debits and credits.
- Financial statements — the full set of formal reports, of which the balance sheet is one.