The Balance Sheet Must Balance
The balance sheet, also known as the statement of financial position, is a snapshot of the company’s financial strength at the end of the fiscal year. The statement details what the company owns and what it owes. It does not show money flowing in or out (that’s on the statement of cash flows), but gives you a snapshot of whether this is a viable business or not.
It is called a balance sheet because it must balance. The balance is often expressed as this formula:
assets = liabilities + (shareholders) equity
(shareholders) equity = assets – liabilities
The three terms that make up the formula are the heart of what the balance sheet tells you about the company.
Assets: What the Company Owns
Assets represent what ...