In financial accounting
, a balance sheet
or statement of financial position
is a summary of the financial balances of an individual or organisation, whether it be a sole proprietorship
, a business partnership, a corporation, Private limited company
or other organization such as Government or not-for-profit entity. Assets, liabilities and ownership equity are listed as of a specific date, such as the end of its financial year. A balance sheet is often described as a "snapshot of a company's financial condition". Of the four basic financial statements
, the balance sheet is the only statement which applies to a single point in time of a business' calendar year.
A standard company balance sheet has three parts: assets, liabilities, and ownership equity. The main categories of assets are usually listed first, and typically in order of liquidity
. Assets 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 and according to the accounting equation
, net worth must equal assets minus liabilities.
Another way to look at the balance sheet equation is that total assets
equals liabilities plus owner's equity. Looking at the equation in this way shows how assets were financed: either by borrowing money (liability) or by using the owner's money (owner's or shareholders' equity). Balance sheets are usually presented with assets in one section and liabilities and net worth in the other section with the two sections "balancing".
A business operating entirely in cash can measure its profits by withdrawing the entire bank balance at the end of the period, plus any cash in hand. However, many businesses are not paid immediately; they build up inventories of goods and they acquire buildings and equipment. In other words: businesses have assets and so they cannot, even if they want to, immediately turn these into cash at the end of each period. Often, these businesses owe money to suppliers and to tax authorities, and the proprietors do not withdraw all their original capital and profits at the end of each period. In other words, businesses also have liabilities.