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A balanced sheet is a type of financial statement that provides a snapshot of an organization's financial situation at a certain point in time. It gives details about the company's assets, liabilities, and equity and is used to judge the stability and soundness of the company's finances.
The term "balanced sheet" refers to the requirement that the total value of assets equals the entire value of liabilities plus equity on the balance sheet. In other words, the equation for a balanced sheet is:
Assets = Liabilities + Equity
Assets are valuable things that an organization possesses or controls with the hope of generating future financial gain. Assets can be physical (such as real estate, machinery, and equipment), as well as intangible (such as patents, trademarks, and copyrights). According to their liquidity, or how quickly they can be turned into cash, assets are categorized. Long-term assets, such as property, plant, and equipment, are anticipated to generate economic advantages over a longer period of time than current assets, such as cash and accounts receivable, which are projected to be converted into cash within a year.
An organization's liabilities are the debts or responsibilities it has to other people. As well as long-term obligations like bonds and loans payable over more than a year, they also contain current liabilities like accounts payable and short-term loans.
After obligations are subtracted, equity is the organization's remaining interest in its assets. Owners' capital contributions are included, as well as retained earnings, or profits that haven't been paid out as dividends to owners.
