Balance Sheet
What Is a Balance Sheet?
A balance sheet is a financial statement that shows what a person or organization owns (assets), owes (liabilities), and the difference between them (equity) at a specific point in time.
Why It Matters
A balance sheet provides a snapshot of financial health. It helps individuals, businesses, and investors assess stability, debt levels, and overall financial position.
How a Balance Sheet Works
The balance sheet follows this equation:
Assets = Liabilities + Equity
It includes:
- assets (cash, investments, property)
- liabilities (loans, credit card debt)
- equity (net worth or ownership value)
It reflects financial standing at a single moment, unlike income statements which track performance over time.
Example
A person has $100,000 in assets and $40,000 in debt. Their equity (net worth) is $60,000.
Balance Sheet vs Income Statement
- Balance sheet shows financial position.
- Income statement shows income and expenses over time.
FAQs About Balance Sheets
How often should it be reviewed?
Regularly, especially for businesses.
Is it only for companies?
No, individuals can create personal balance sheets.
What does negative equity mean?
Liabilities exceed assets.
Related Terms
