Definition & Purpose of Balance Sheet

The Balance Sheet is a statement of financial position of a business at a specific point in time usually at the end of the month or year. By analyzing and reviewing this financial statement the current financial “health” of a business can be determined.

The Balance Sheet sums up the economic resources (assets), obligations (debts and other long-term liabilities) and the owners’ Capital at a particular point of time. It also shows how the economic resources contributed by lenders and shareholders are used in the business. This statement is called a “balance sheet” because at any given time, Assets must equal Liabilities plus Capital, in other words, be in balance.

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