The balance sheet is a financial statement or report that shows the financial status or condition of the company. It shows the assets, liabilities, and equity of the business owner.

Assets are the resources of the company or items that are being used to operate the business. It is important to understand your assets in order to know whether you have enough assets or they are already lacking to properly run your business.  It includes cash on hand and in banks, accounts receivables from customers, inventories or stocks for sale, fixed assets such as the machinery and equipment or loans from certain individuals or entities.

Liabilities are the debts of the company. It includes accounts payables to suppliers, credit card obligations for business and loans from shareholders/owners. Keeping track of your liabilities will help you monitor whether your debts are more than your assets.

Equity is the amount that is left to the owners after deducting liabilities from the assets. It is that portion of the assets that the business owners can call they own. A positive balance of equity is an accumulation of capital invested by the owner minus withdrawals or distributions plus net profit. A deficit or a negative equity shows that the business is in unhealthy financial status.

While the balance sheet is a quick picture of the financial status of a business, a professional bookkeeper or a CPA can help you better understand or analyze each item or detail that makes up the balance sheet.

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