What is a Balance Sheet?

A balance sheet is a type of financial statement that summarizes a company’s health and overall worth at a single date in time. It lists all of a business’ assets, liabilities, and shareholder equity—what it owns, what it owes, and how much is left for the owner(s).

As one of the three major financial statements, along with the income statement and the cash flow statement, the balance sheet is a valuable tool for company leadership, investors, and other interested parties to understand a business’ financial condition.

Components of a balance sheet

A balance sheet consists of a company’s assets, liabilities, and shareholder equity. It is expressed as the following formula:

Assets = Liabilities + Shareholder Equity

It is called a balance sheet because both sides must balance out, or equal each other. A business cannot have more assets than liabilities and equity, or vice versa.

For example, if a company buys a $10,000 piece of equipment, both the assets and liabilities would increase by $10,000 because of the expense needed to purchase that asset.

Within each category, the balance sheet typically contains three types of information.


Assets include money or other valuable resources a company has to its name. Examples include:

  • Cash (or cash equivalents);
  • Accounts receivable;
  • Investment income;
  • Owned property and equipment, also known as fixed assets;
  • Product inventory;
  • Intangible assets (such as brand equity or patents and trademarks).


Liabilities include money or other financial obligations a company owes to third-parties. Examples include:

  • Employee salaries or other operational expenses;
  • Loans or other credit obligations
  • Accounts payable
  • Pension obligations
  • Deferred tax liabilities

Both assets and liabilities can be broken up into short-term (current) and long-term (non-current) categories.

Shareholder equity

Also known as net worth or net assets, shareholder equity is the amount of assets that belong to the owners or investors after all of the third-party liabilities are accounted for.

Purpose and uses of a balance sheet

Balance sheets are produced by all businesses at regular intervals, such as quarterly or even monthly. Publicly traded companies will release their balance sheets to investors and financial media for transparency, and are typically required to have their balance sheets audited by an external accounting firm to ensure that they are complete and accurate.

Because balance sheets show the company’s overall financial condition at one specific point in time—the date it was produced—they are less useful than other financial statements to show trends in time. Nonetheless, comparing balance sheets over a period of time can still show a company’s progression.

Balance sheets can reveal critical information about a company’s mix of assets, debt, and equity, and can be used to pinpoint if a company has too much debt, for example, or not enough money to pay its creditors. In general, they are valuable tools for:

  • Internal strategic planning and decision-making by the business;
  • Applications decisions by lenders and financial institutions;
  • Investing decisions by current or potential investors;
  • Establishing tax and legal compliance or alignment with generally accepted accounting principles (GAAP).