Also referred to as the statement of financial position, it is one of the five main components of financial statements alongside the income statement, cash flow statement, statement of changes in Equity and notes to the accounts. It shows a company’s assets, liabilities and owner’s equity at the end of the fiscal year, for example at December 31 of a given year. It is a financial statement which summarizes of what a company owns as well as what it owes along with the investment made by the shareholders. It is based on the accounting equation and the principle of duality that assets will be equal to the sum of liabilities and shareholders’ equity every time. This is because these assets are covered the owner’s equity and third-party investment in the business.
The balance sheet is a statement which represents the condition of a company’s finances at a given moment in time. In order to get a real sense of the trends the balance sheet of the current period should be compared with the balance sheets of previous periods. It should also be compared with balance sheets of businesses operating in the same industry.