Balance Sheet

The balance sheet is a snapshot. It lists assets, such as cash, inventory, buildings and money owed by customers, then liabilities, such as loans and unpaid bills, and finally equity, the owners' share.

It always balances, because of the accounting equation: assets equal liabilities plus equity. If a company has assets of 3 million and liabilities of 1.8 million, its equity is 1.2 million.

Items are usually grouped by timing. Current assets and current liabilities are expected to be turned into cash or paid within a year. Non-current assets, such as equipment, and non-current liabilities, such as long-term loans, cover longer periods. This grouping helps readers judge whether the business can meet its short-term obligations.

The balance sheet answers questions such as: how much cash does the company have, how much debt does it carry and how much has been invested by owners or retained from past profits? It is most useful when compared over several dates, to see how the business's position is changing.

Note: Under IFRS, the balance sheet is formally called the statement of financial position. Both names describe the same statement.