What is a balance sheet?

Definition of a balance sheet

A balance sheet is a report that shows how much a business owns, and owes, as at a given point in time.

The balance sheet sums up all a business's assets, fixed and current, and then subtracts all its liabilities, current and long-term, from that total.

The total will be equal to the sum of the business's capital accounts, because if the business sold all its assets and paid all its debts, that would be the amount left for the business owners to keep.

If the total of the balance sheet is a negative number, the business owes more than it has the resources to pay, in other words it is 'insolvent'.

Example of a balance sheet:

This balance sheet example was created using FreeAgent.

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