A balance sheet is a summary of a person’s or organization’s balances. Along with the income and cash flow statements, balance sheet is an important tool for investors to gain insight into a company and its operations.

In balance sheet, assets, liabilities and ownership equity are listed as of a specific date, such as the end of its financial year. It is important to note that a balance sheet is a snapshot of a company’s financial condition at a single point in time. Of the four basic financial statements, the balance sheet is the only statement which applies to a single point in time. If you are a shareholder of a company, it is important that you understand how the balance sheet is structured, how to analyze it and how to read it.

A company balance sheet has three parts: assets, liabilities and shareholders’ equity. The main categories of assets are usually listed first and are followed by the liabilities. The difference between the assets and the liabilities is known as equity or the net assets or the net worth of the company and according to the accounting equation, net worth must equal assets minus liabilities.

Another way to look at the same equation is that assets equals liabilities plus shareholders’ equity. Looking at the equation in this way shows how assets were financed: either by borrowing money (liability) or by using the shareholders’ money (shareholders’ equity).

assets = liabilities + shareholders’ equity

Records of the values of each account or line in the balance sheet are usually maintained using a system of accounting known as the double-entry book keeping system. Balance sheets are usually presented with assets in one section and liabilities and net worth in the other section with the two sections “balancing”. Assets are on the left side and the right side contains the company’s liabilities and shareholders’ equity.