The Balance Sheet is one of the core financial statements and shows what a business owns, owes, and what’s left for the owner—at a specific point in time. It’s like a financial snapshot of the business’s health.

“A Balance Sheet summarizes a company’s assets, liabilities, and equity based on the accounting equation: Assets = Liabilities + Equity.”

This report helps owners, investors, and lenders understand how stable and solvent a business really is.

Assets are everything the business owns that has value and can help generate income. This includes cash in hand or in the bank, accounts receivable (money customers owe the business), inventory (products waiting to be sold), and equipment or vehicles used in daily operations. It also includes prepaid expenses, like insurance or rent paid in advance. Assets are generally divided into two categories: current assets, which are expected to be used or converted into cash within one year (such as cash, receivables, and short-term investments), and non-current assets, which are long-term in nature, like buildings, land, or machinery.

Double-entry bookkeeping is the standard method used by most businesses worldwide. In this system, every financial transaction affects at least two accounts—one is debited, and the other is credited. This method is based on the fundamental accounting equation: Assets = Liabilities + Equity. For example, if you sell a product for $100 in cash, you would record a debit to Cash (which increases your assets) and a credit to Sales (which increases your income). This dual effect helps keep the books balanced and minimizes the chance of errors. It also provides a more complete and accurate view of a business’s financial health, making it essential for generating reports like the Balance Sheet and Profit & Loss Statement.

Equity represents the owner's claim on the business after all debts and liabilities have been settled. It includes the owner’s capital, which is the money invested into the business; retained earnings, which are the profits that have been kept in the business rather than withdrawn; and owner’s drawings, which reflect any money the owner has taken out for personal use. Equity shows what portion of the business truly belongs to the owner. In simple terms, it fits into the accounting equation: Assets (what you have) = Liabilities (what you owe) + Equity (what you own). This balance ensures that every dollar in the business is accounted for—either through what it owes or what it owns.

If a business owns $20,000 in assets (like cash and inventory), and owes $8,000 in liabilities (like bills and loans), the equity is: $20,000 - $8,000 = $12,000

That $12,000 represents the owner’s stake in the business.

✅ The Balance Sheet shows assets, liabilities, and equity at a specific point in time.
✅ Assets = Liabilities + Equity — this equation must always stay balanced.
✅ Assets are what the business owns; liabilities are what it owes.
✅ Equity is what remains for the owner after liabilities are paid.
✅ The Balance Sheet helps assess financial health, liquidity, and stability.