Balance Sheet Definition

A balance sheet is a financial statement that reports a company’s assets, liabilities and shareholders’ equity at a specific point in time.

Assets are listed first on the balance sheet. They include cash and cash equivalents, short-term investments, accounts receivable, inventory and other assets. Property, plant and equipment are also listed as assets on the balance sheet, but they are classified as long-term assets because they have a useful life of more than one year.

Liabilities are debts or other obligations that the company owes to outsiders. Accounts payable, accrued expenses and long-term debt are all examples of liabilities. Shareholders’ equity is the portion of the business owned by the shareholders. It includes common stock, paid-in capital and retained earnings.

The balance sheet can be prepared using either the account form or report form layout. In the account form, each side of the balance sheet is divided into two sections: current assets and long-term assets on the left side; and current liabilities and shareholder equity on the right side. The report form lists all items on one side of the balance sheet in order of liquidity, with the most liquid items at the top.