Balance Sheet

Balance Sheet - Definition by Business Expert Solutions - Gord Sheppard

What is a Balance Sheet?

A balance sheet is a report that shows your business assets, liabilities, and shareholders’ equity at a specific moment in time. It is one of the three major financial statements that demonstrates what your business owns and owes. It is also known as a statement of financial position and statement of net worth.

A balance sheet paints a picture of how well a business is doing. It also helps investors to understand how profitable a business is because it shows the positive net worth of your business. However, a balance sheet is static, as in, it only reflects what’s happening in a business at one moment in time. It does not show the trends of a business over an extended period of time.

Components of a balance sheet include assets, liabilities, and shareholders’ equity. A typical balance sheet has two sections. One section shows the shareholders’ equity and liabilities while the other section shows the business’s assets.

Balance Sheet – Example

Here is an example of what a balance sheet might look like for the ACME Bakery.






Cash                                                                                                                  200,000

Investments                                                                                                        10,000

Accounts Receivable                                                                                         10,000

Inventory                                                                                                               5,000

Total Current Assets                                                                                       225,000

Property and Equipment                                                                                  40,000

Goodwill                                                                                                              10,000

TOTAL ASSETS                                                                                                  $ 275,000



Accounts Payable                                                                                              15,000

Accrued Expenses                                                                                               4,000

Unearned Revenue                                                                                              6,000

Total Current Liabilities                                                                                     25,000

Long Term Debt                                                                                               150,000

TOTAL LIABILITIES                                                                                            $ 175,000



Common Stock                                                                                                  50,000

Retained Earnings                                                                                             50,000

TOTAL LIABILITIES + SHAREHOLDER’s EQUITY                                  $275,000


A balance sheet is based on the following accounting principle that states:

Assets = Liabilities + Shareholders’ Equity

So, if you fill in the formula for the ACME Bakery Balance Sheet you’ll get

$275,000 = $275,000

Related Terms

Typical items that can be found on the balance sheet include:

  • Assets: accounts receivable, prepaid expense, fixed assets, cash etc.
  • Liabilities: short term debt, long term debt, accounts payable etc.
  • Shareholders’ equity: common stock, preferred stock, treasury stock etc.

Learn More

If you’d like to go even deeper and answer the question ‘Why Should A Business Owner Understand Their Gross Margin?’ then click on this link.