Balance Sheet

A Balance Sheet provides a snapshot of a company's financial position by listing its assets, liabilities, and shareholders' equity. It is divided into two sections: assets (current and fixed) and liabilities + equity. The assets side shows what the company owns, while the liabilities section lists what the company owes. The equity represents the owners' interest in the business after liabilities are subtracted from assets.

The Balance Sheet must always balance, meaning total assets should equal the sum of liabilities and equity. This document helps stakeholders understand the company’s financial strength and liquidity and is used by investors and lenders to make decisions.

Common Use Cases:

• Assessing a company’s liquidity by comparing current assets to current liabilities.
• Reviewing long-term financial stability for investment or lending decisions.
• Monitoring changes in assets and liabilities over time.

Example:
A small consulting firm prepares a balance sheet showing £50,000 in assets, £20,000 in liabilities, and £30,000 in equity. The balance sheet helps the firm assess whether they can cover short-term debts.