Balance Sheet Definition
Balance Sheet Definition

See Also:
Chart of Accounts (COA)
Working Capital Analysis
Quick Ratio Analysis
Current Ratio Definition
Financial Ratios
Common Size Financial Statement
Contra Asset Account

Balance Sheet Definition

The balance sheet is a financial statement that shows a company’s financial position at a point in time. The balance sheet format comes in three sections: assets, liabilities, and owners’ equity. The assets represent what the company owns. Then the liabilities represent what the company owes. Finally, the owners’ equity represents shareholder interests in the company. The value of the company’s assets must equal the value of the company’s liabilities plus the value of the owners’ equity.

Balance Sheet Equation

This balance sheet formula forms the basis of the statement which is also known as the accounting equation.
Assets = Liabilities + Owners’ Equity

Balance Sheets Explained

There are four basic financial statements: balance sheets, income statementsstatement of cash flows, and statement of owners’ equity. Of the four, the balance sheet, also called the statement of financial position, is the only one that applies to a specific point in time. The others cover financial activity occurring over a period of time. That’s why the balance sheet is considered a “snapshot” of a company’s financial condition. Typically, you prepare the balance sheet’s accounting monthly or quarterly.
The three sections of the balance sheet consist of line items that state the value of each account within that section. There is no universal format for the balance sheet, so each company’s balance sheet will look somewhat different. This makes balance sheet analysis more difficult than with GAAP compliant reports. However, the basic equation shown above must always apply.

Balance Sheet Example

Jake owns an equipment rental company called Equipco. Jake’s company has been steadily growing. Due to this, Jake is interested in receiving a bank loan to finance some additional equipment purchases. He needs to know what his total dollar amount of assets and liabilities are so that he can meet the requirements and preferences of his banker. To do this Jake asks his bookkeeper for the most recent copy of his balance sheet.
Jake is excited to learn that he can qualify for his bank loan. To begin, his total assets value is at an acceptable level. Jake also has enough owners equity to satisfy his bank on the corporate level. Surprisingly, Jake finds that he does not have too many liabilities to qualify. This concern was, as he believed, his major obstacle to earning the loan. According to Jake’s banker, his balance sheet ratios have everything in order to receive his loan. All from one statement!

Balance Sheet Template

A balance sheet template free for download and review is available at the S.C.O.R.E. Template Gallery.
If you want to add more value to your organization, then click here to download the Know Your Economics Worksheet.
balance sheet definition
[box]Strategic CFO Lab Member Extra
Access your Strategic Pricing Model Execution Plan in SCFO Lab. The step-by-step plan to set your prices to maximize profits.
Click here to access your Execution Plan. Not a Lab Member?
Click here to learn more about SCFO Labs[/box]
balance sheet definition


The Accounting Gap Between Large and Small Companies

The Accounting Gap: It’s unfortunate, but true. A large gap exists between the accounting departments of large or publicly traded companies and smaller or private companies. In our past 25 years of consulting we’ve noticed that more often than not, these smaller/private companies will fill the gap with Bookkeepers, rather than the degreed Accountants/CPAs they

Read More »

The Struggles of Private Company Accounting

Building your Accounting Department… When I meet a business owner operating at a successful $10+ mil in revenue I often hear them say “My CPA…” and I immediately know they are referring to a tax CPA. One thing ALL entrepreneurs have in common is that they have to file a tax return. So from day

Read More »

Financial Ratios

See also:Quick Ratio AnalysisPrice to Book Value AnalysisPrice Earnings Growth Ratio AnalysisTime Interest Earned Ratio Analysis Use of Financial Ratios Financial Ratios are used to measure financial performance against standards. Analysts compare financial ratios to industry averages (benchmarking), industry standards or rules of thumbs and against internal trends (trends analysis). The most useful comparison when

Read More »


Financial Leadership Workshop

MARCH 28TH-31ST 2022


Financial Leadership Workshop


June 12-15th, 2023

WIKI CFO® - Browse hundreds of articles