balance sheet
A financial statement showing a company's assets, liabilities, and shareholders' equity at a specific point in time.
Example
“The company's balance sheet showed $10 million in assets and $7 million in liabilities.”
Memory Tip
A BALANCE sheet must BALANCE — assets always equal liabilities plus equity.
Why It Matters
Understanding balance sheets helps you evaluate the financial health of companies you invest in or work for. It shows whether a business has enough assets to cover its debts and whether it is growing or declining over time.
Common Misconception
Many people think a balance sheet shows how much profit a company made, but it actually shows the financial position at one moment in time. Profit information comes from the income statement, not the balance sheet.
In Practice
If you are considering buying stock in a retail company, you would review its balance sheet to see it has 500 million dollars in assets, 300 million in liabilities, and 200 million in shareholders equity. This 2 to 1 ratio of assets to liabilities suggests the company has a reasonable cushion to weather financial difficulties.
Etymology
Balance (equilibrium) + sheet (a page of accounts) — a page showing assets and liabilities in balance.
Common Misspellings
Small business accounting made simple
Related Terms
More in accounting
Other accounting terms you should know
See Also
Need financial definitions?
Clear definitions for 2,500+ finance, insurance, and investing terms.