The balance sheet is included in end of year financial reports and shows what the business is worth at one point in time (usually the year end).
Simply, it shows the following:
- Value of assets that the business owns (e.g. equipment, property or machinery), These are referred to as fixed assets
- What the business is owed (e.g. money from customers or other 3rd parties, money in the bank). These are referred to as current assets.
- What the business owes to suppliers or tax, vat etc. This is known as liabilities.
When the value of liabilities are deducted from the value of assets the balance sheet is either positive or negative. Having a negative balance is something of a concern and can highlight problems in the way the business is being operated.
Balance sheets are important tools for banks, shareholders and investors.