Image courtesy of Pixabay.com

Image courtesy of Pixabay.com

A balance sheet is a summary of a business’s assets, liabilities and equity.

Assets

Assets are things the business owns, such as equipment and cash in the bank. Accounts receivable are also assets.

Liabilities

Liabilities are things the business owes, such as accounts payable and loans payable.

Equity

Equity is what has been put into the business by the owners, minus what’s been withdrawn by the owners, plus or minus the yearly profit or loss of the business.

Why is it Called a Balance Sheet?

A balance sheet must balance, meaning: assets = liabilities + equity.

(NOTE: this post is intended to be a very high-level overview; the above explanations are highly simplified.)

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