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In formal bookkeeping and accounting, a balance sheet is a statement of the financial value (or "worth") of a business or other organisation (or person) at a particular date, usually at the end of its "fiscal year," as distinct from a profit and loss statement ("P&L," also known as an income statement), which records income and expenditures over some period. Therefore a balance sheet is often described as a "snapshot" of the company's financial condition at that time. Of the four basic financial statements, the balance sheet is the only statement which applies to a single point in time, instead of a period of time.
The balance sheet has two parts: assets on the left-hand ("debit") side or at the top and liabilities on the right-hand ("credit") side or at the bottom. The assets of the company -- money ("in hand" or owed to it), investments (including securities and real estate), and other property -- are equal to the claims for payments of the persons or organisations owed -- the creditors, lenders, and shareholders. This standard format for balance sheets is derived from the principle of double-entry bookeeping.
Formulas
According to the basic accounting equation:
assets = liabilities + shareholders' equity
therefore:
assets - liabilities = shareholders' equity
Equity valuation
Equity, which is the shareholders' interest ("net worth"), may not reflect the company's true value, since assets are normally shown ("carried") on the balance sheet at what the company paid for them, without any adjustment for increases (write up) or decreases (write down) in their value since then.
See also
- Accounting
- Off-balance-sheet
- Off-Balance-Sheet Entities
- Off-Balance-Sheet Financing
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