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Simple English definitions for legal terms
balance sheet
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A quick definition of balance sheet:
A balance sheet is a financial statement that shows how much a company owns (assets) and how much it owes (liabilities) at a specific time. It also shows how much of the company belongs to its owners (equity). The assets are listed on one side and the liabilities and equity are listed on the other side. The two sides must be equal. The balance sheet is made every year, quarter, month, or when a company is sold to show how well the company is doing financially.
A more thorough explanation:
A balance sheet is a financial statement that shows a company's assets, liabilities, and ownership equity at a specific point in time. It gives an overview of the financial health of a company.
The balance sheet has two sides:
- Assets (movable and unmovable) on one side
- Liabilities and equity on the other side
Both sides must balance out with each other.
Here are some examples of items that might appear on a balance sheet:
- Assets: cash, inventory, property, equipment, investments
- Liabilities: loans, accounts payable, taxes owed
- Equity: retained earnings, common stock
For example, if a company has $100,000 in assets, it must also have $100,000 in liabilities and equity combined. This shows that the company has a balanced financial position.
A balance sheet is typically prepared on a yearly, quarterly, or monthly basis to reflect the financial condition of the company. It can also be prepared when a business is sold to show the financial position of the company at the time of the sale.