Balance Sheet

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Definition

The balance sheet is one of the four basic financial statements required by GAAP (Generally Accepted Accounting Principles) and IFRS (International Financial Reporting Standards). The balance sheet is most easily described as a snapshot of a company's financial position. Of the four basic statements, the balance sheet is the only statement that applies to a single point in time.

A standard balance sheet has three parts: assets, liabilities and shareholder's equity. The asset subcategories are usually listed first and are typically listed in order of liquidity. Assets are followed by the liabilities. The difference between the assets and the liabilities is known as shareholders' equity or as the net assets/net worth of the company. Assets are equal to the sum of liabilities and shareholders' equity.

The name "balance sheet" arises from the fact that total assets must always be in balance with the sum of liabilities and shareholder's equity. A company must finance its assets by either getting money from shareholders or by borrowing money from other sources in the form of liabilities.

Formula

Assets = Liabilities + Shareholders' Equity

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