Balance Sheet is a statement of the financial position of a business that lists the assets, liabilities, and owner's equity at a particular point in time. In other words, the balance sheet illustrates your business's net worth.
The balance sheet may also have details from previous years so you can do a back-to-back comparison of two consecutive years. This data will help you track your performance and will identify ways to build up your finances and see where you need to improve.
You can also use the balance sheet to determine how to meet your financial obligations and figure out the best ways to use credit to finance your operations.
The balance sheet is the most important of the three main financial statements used to illustrate the financial health of a business. The other two are:
- The income statement, which shows net income for a specific period of time, such as a month, quarter, or year. Net income equals revenue minus expenses for the period.
- The cash flow statement, which shows the movements of cash and cash equivalents in and out of the business. Chronic negative cash flows are symptomatic of troubled businesses.