What is a Balance Sheet?

A balance sheet allows businesses to see their assets, liabilities and owner's or stockholders' equity for a specific point in time.

The balance sheet is one of the three main financial statements, the others being the income statement (or profit & loss statement) and the cash flow statement.

The balance sheet allows for business owners and stockholders to understand the financial position of a business at any specified date, for example, December 31.

There are 3 sections in a balance sheet:

• Assets, which essentially shows valuable resources that a business owns

• Liabilities, which shows the financial obligations a business has

• Owner's (stockholders') equity, essentially the book value of a company, as it is equal to assets - liabilities

In order to balance the balance sheet, assets equals liabilities + owner's (stockholders') equity.