BALANCE SHEET

In financial accounting, a balance sheet or statement of financial position is a summary of a person’s or organization’s balances. A balance sheet is often described as a snapshot of a company’s financial condition. It summarizes a company’s assets, liabilities and shareholders’ equity at a specific point in time. These three balance sheet segments give investors an idea as to what the company owns and owes, as well as the amount invested by the shareholders. Of the four basic financial statements, the balance sheet is the only statement which applies to a single point in time.

A company balance sheet has three parts: assets, liabilities and ownership equity. The main categories of assets are usually listed first and are followed by the liabilities. The difference between the assets and the liabilities is known as equity or the net assets or the net worth or capital of the company. It’s called a balance sheet because the two sides balance out. A typical format of the balance sheet has been given in Table 2.1. It works on the following formula:

Assets = Liabilities + Shareholders’ Equity