A balance sheet is a snapshot of a business's financial position on a specific date, showing what it owns (assets), what it owes (liabilities) and the owners' stake (equity).
This guide explains the three components and why the two sides always balance.
What is the balance sheet?
The balance sheet follows the accounting equation: Assets = Liabilities + Equity. Assets are resources the business controls; liabilities are its obligations; equity is the residual owners' interest.
It always balances because every asset is financed either by a liability or by owners' equity.
Balance sheet components
| Component | Examples |
|---|---|
| Assets | Cash, receivables, inventory, equipment |
| Liabilities | Payables, loans, taxes due |
| Equity | Share capital, reserves, retained earnings |
Frequently asked questions
Why is it called a balance sheet?
Because total assets always equal total liabilities plus equity — the two sides balance.
What is the difference between a balance sheet and a P&L?
The P&L covers a period of activity (income and expenses); the balance sheet is a snapshot of position at a single date.