Balance sheet
AccountingA snapshot of what the business owns and owes at a single moment in time.
Where the income statement covers a period, the balance sheet is a photograph taken on one date. It lists assets, what the company controls, against liabilities and equity, the claims on those assets. It balances by construction: everything the business has, someone has a claim on.
Read it as two questions. The asset side asks what the company has put its money into: cash, receivables, inventory, property, intangibles. The other side asks where that money came from: suppliers who have not been paid, lenders, and shareholders.
Equity is the residual. It is not a pot of money the company holds, it is what would be left for shareholders if every asset were realised at its carrying value and every liability settled. This is why equity can be negative without the company being insolvent in a cash sense, and why book value and market value routinely differ by a factor of several.
The balance sheet is where the accrual convention accumulates. Every timing difference between profit and cash ends up as a balance sheet line, which is what makes working capital analysis possible and what makes the balance sheet the place to look when an income statement seems too good.
The asset side answers one question: what has the company put its money into? Cash, working capital, fixed assets, and what it paid for acquisitions.