Balance Sheet
Also known as: Statement of Financial Position
A balance sheet is a snapshot of what your business owns, what it owes, and what is left over for the owners on a specific date.
What it actually means
Where a P&L covers a period, a balance sheet is a single moment: assets on one side, liabilities and owner's equity on the other, always equal. Assets are cash, receivables, equipment, and inventory. Liabilities are loans, credit card balances, and unpaid bills. The remainder is equity, the owner's stake. Lenders and buyers read this before anything else, because it shows whether the business could survive a slow quarter. It also catches bookkeeping problems a P&L hides: a balance that won't reconcile, an account that has drifted negative, or equipment expensed when it should have been capitalized.
$60,000 in assets minus $22,000 in liabilities leaves $38,000 of owner's equity.
When a bank or an equipment lender asks for financials, this is the document that decides the answer. A local business with clean, current balance sheets tends to get a faster credit decision than one submitting a bank export and a shrug.
Related terms
A profit and loss statement shows revenue, costs, and expenses over a period of time, ending with the profit or loss that is left.
A cash flow statement tracks the actual money moving in and out of your business over a period, separate from profit on paper.
Accounts receivable is money customers owe you for work already delivered but not yet paid for.
Accounts payable is money your business owes suppliers and vendors for goods or services already received but not yet paid for.
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