Balance sheet reports the financial condition of the company at a specific point in time. Financial condition is the status of a company’s assets, liabilities, and equity.
Assets are the properties owned by the company while the liabilities are the debt or claims against the company. The difference between assets and liabilities is called equity. Assets are always equal in total value with liabilities and equity:
Assets = Liabilities + Equity
Believe it or not, you can make a balance sheet of your own financial condition right now. Let’s have Juan as an example. Juan reached into his pocket and found 150 pesos.
Included in the P150 cash is the P50 his mother gave him for his allowance so that would be his liability.
The difference between Assets and Liabilities is Equity.
Payable to mommy P50
Notice the characteristics mentioned?
1. Contains financial condition (status of assets, liabilities, and equity)
2. At a specific point in time (you can prepare balance sheet anytime)
3. Assets are always equal in total value with liabilities and equity