Balance sheet

Definition

A balance sheet is a financial statement that provides a snapshot of a company's financial position at a specific point in time. It lists assets, liabilities, and owner's equity to illustrate the company's net worth.

5 Must Know Facts For Your Next Test

1. The balance sheet follows the accounting equation: Assets = Liabilities + Owner's Equity.
2. Assets are typically divided into current and non-current categories.
3. Liabilities are also categorized into current and long-term obligations.
4. Owner’s equity represents the residual interest in the assets after deducting liabilities.
5. Balance sheets must be balanced, meaning total assets should equal the sum of total liabilities and owner’s equity.

Review Questions

• What is the primary purpose of a balance sheet?
• How does the balance sheet ensure that it remains balanced?
• What are the main components listed on a balance sheet?

Related terms

Income Statement:

A financial statement that shows a company’s revenues and expenses over a specific period, resulting in net profit or loss.

Statement of Owner’s Equity: A financial document that details changes in owner's equity over an accounting period.

Adjusted Trial Balance:

A list of all accounts and their balances after adjusting entries have been made, used to prepare financial statements.