A balance sheet is a statement of the financial position of a company that reflects a single point in time. A balance sheet is prepared with other financial statements on a particular date usually calculated at the close of a financial accounting period such as a month or fiscal year. A balance sheet is required by the Security and Exchange Commission (SEC) as part of the financial reporting of public companies. The balance sheet is used to convey the responsibility of the business to stakeholders. A balance sheet reflects the accounting equation described by the relationship between your company’s assets, liabilities, and equity. Your business assets include cash, accounts receivable, inventory, real property, and intangible property. Liabilities include accounts payable, income taxes, mortgage notes, and other forms of debt. Owners’ equity includes issued stock and retained earnings – those revenues that have been reinvested as opposed to being distributed to owners. The total of all assets should equal the total of your liabilities plus owners’ equity for the same accounting period. A balance sheet is used to inform you and your stakeholders of the type and nature of assets you hold, and your obligations to your creditors and yourself. The balance sheet compliments the other financial statements (the income statement and statement of cash flows) by summarizing their details and describing how the current state of assets, liabilities and owners’ equity directly impacts those with interest in the company.
< BACK TO GLOSSARY>