What is the Balance Sheet?

The Balance Sheet shows a snap shot of the business’s assets and liabilities. A Balance Sheet always shows information for close of day on a particular day.

A good analogy for the Balance Sheet is a stock take in a warehouse. The stock take will show the assets in the warehouse at a moment in time. The difference with a Balance Sheet is that it shows assets, like stock, money in the bank, equipment etc, but also liabilities, like tax, loans, wages owed.

At the bottom is a figure of Equity. This is equal to the Assets minus Liabilities. It shows what money would be held if all assets were turned into cash and all liabilities were paid off. For businesses that are insolvent this figure is negative indiciating that the business would be left owing money.