The balance sheet is one of the three main financial statements of a company, as it provides a snapshot of what the company owns (assets) & what it owes (liabilities). It is used by investors & analysts to calculate ratios that measure the company’s financial well-being.
The balance sheet follows the equation: (Assets = Liabilities + Shareholder’s Equity). The balance sheet must be “balanced” because if a company decides to borrow money from a bank, then its assets will increase by that amount, & so will its liabilities. The same goes for shareholder’s equity, because if a company borrows money from an investor, then its assets will increase by the same amount, & so will its shareholder’s equity.