A Balance Sheet is a financial report that shows what a business owns (assets), what it owes (liabilities), and the owner's share in the business (equity) at a specific point in time. It gives a complete snapshot of a company’s financial position—what it has, what it owes, and what’s left over for the owner.

It follows one simple but powerful formula:
Assets = Liabilities + Equity

This formula ensures that everything the business owns is either funded by borrowing (liabilities) or by the owner's investment (equity).

Start by listing all your assets—these are the things your business owns that have value. Assets are usually divided into two main categories. Current assets include items like cash, accounts receivable, and inventory—things that are expected to be used or turned into cash within one year. Non-current assets are long-term items such as equipment, buildings, and investments that will benefit the business for more than a year. Each asset should be recorded with a dollar value, either based on its original cost or its market value, depending on the reporting method your business follows.

Next, list all your liabilities—this is the money your business owes to others. Just like assets, liabilities are categorized into two groups. Current liabilities include short-term obligations such as accounts payable, short-term loans, and taxes that are due within a year. Long-term liabilities are debts or financial commitments that extend beyond one year, like mortgages or long-term business loans. This section of the balance sheet reflects your company’s financial obligations and helps identify potential risks related to outstanding debts.

Lastly, record the owner’s equity, which represents the owner's financial interest in the business. This includes the capital invested by the owner, any retained earnings (profits that have been kept in the business rather than withdrawn), and owner’s drawings or withdrawals (money taken out by the owner for personal use). Equity is essentially the net worth of the business—it shows what remains after all liabilities have been subtracted from the assets.

Once you’ve entered all values, total up the assets on one side and the liabilities plus equity on the other. The two sides must balance. If they don’t, it means there’s a mistake in the records or calculations

✅ A Balance Sheet shows assets, liabilities, and equity at a point in time
✅ Assets = Liabilities + Equity is the key formula
✅ It helps measure financial health, risk, and business value
✅ Every amount must be accurate so the two sides stay balanced
✅ A balanced sheet = clean records and smart decision-making