Balance Sheet

Most people go to a doctor once a year to get a checkup—a snapshot of their physical well-being at a particular time. Similarly, companies prepare balance sheets as a means of summarizing their financial positions at a given point in time.
A balance sheet utilizes double-entry accounting—a system that ensures that each transaction balances. This system relies on the following basic equation:

Assets - Liabilities = Owner's Equity

Assets are the things a company invests in so that it can conduct business—examples include:

• financial instruments
• land
• buildings
• equipment
• commodities

In order to acquire necessary assets, a company often borrows money from others or makes promises to pay others. Monies owed to creditors are called liabilities. Owner's equity, also known as shareholders' equity, is what, if anything, is left over after total liabilities are deducted from total assets. Thus, a company that has $3 million in assets and $2 million in liabilities would have owner's equity of $1,000,000.