3. The Balance Sheet

The first financial report we cover in this book is the balance sheet. The balance sheet shows a business’s financial position at a specific time. It is a snapshot of a business, not a record of its performance over a period of time. The balance sheet pinpoints financial status at the close of business at the end of an accounting period.

The Balance Sheet Balances

The balance sheet has two sides. The numbers on each side must add up to the same total. The balance sheet balances.

On one side of the balance sheet are assets (things of value the company owns). On the other side are liabilities (debts the company owes) and capital (the owners’ share of the company). The balance sheet is described by this equation:

assets = liabilities ...

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