Balance Sheet

What is a Balance Sheet?

The balance sheet is a financial document used to assess the health of an organization at a fixed date.

• Banks rely on the balance sheet for the purpose of scoring your loan application.
• Investors rely on the balance sheet for the purpose of determining whether you are a good investment risk.
• You rely on the balance sheet because it measures your progress and efficiency in the running of your business.

Balance sheets reflect the capital structure of the firm. Capital represents a major resource for all firms. Capital resources need to be acquired and used at the most efficient rates possible.

No business owner can pay cash for everything. Even GM and Exxon must borrow or issue stock. Avoiding all debt is foolish and expensive but too much debt is far too risky. You have to strike an efficient balance for both.

Items on the balance sheet allow you compare how efficiently you are allocating your capital assets. (see ratios).

Balance sheets are composed of three basic elements: Assets (on the left side), Liabilities (on the right side) and Owners Equity (also on the right side)
The balance sheet balances the assets to the liabilities and owner's equity. By definition the following is true:

ASSETS = LIABILITIES + OWNER'S EQUITY

The Elements of a Balance Sheet Explained

Want to see how your business' Balance Sheet would look?... You can download sample Balance Sheets here.