balance sheet

Definition

Condensed statement that shows the financial position of an entity on a specified date (usually the last day of an accounting period). Among other items of information, it states (1) what assets the entity owns, (2) how it paid for them, (3) what it owes (its liabilities), and (4) what is the amount left after satisfying the liabilities. Balance sheet data is based on a fundamental accounting equation (assets = liabilities + owners' equity), and is classified under sub-headings such as current assets, fixed assets, current liabilities, Long-term Liabilities. With income statement and cash flow statement, it comprises the set of documents indispensable in running a business. An audited balance sheet is often demanded by investors, lenders, suppliers, and taxation authorities; and is required by law under the corporate legislation (such as the Companies Act). To be considered valid, a balance sheet must give a 'true and fair view' of the entity's state of affairs, and must follow the provisions of GAAP in its preparation. Called also statement of condition, statement of financial condition, or statement of financial position.