The balance sheet is the financial statement that shows what a business owns, what it owes, and what is left for the owner, at a single point in time.

Of the three core financial statements, the balance sheet is the one most business owners spend the least time with. That is a mistake. The income statement indicates whether the business made money. The balance sheet indicates whether it is financially healthy: whether assets are productive, liabilities are manageable, and equity is building over time.

Three things the balance sheet answers that the income statement cannot: whether the business has enough liquidity to meet its near-term obligations, whether accumulated profits are actually accessible or tied up in assets, and whether the debt load is proportionate to what the business owns and earns. A lender’s first instinct when reviewing financials is to open the balance sheet, not the income statement.

Understanding the balance sheet is where financial literacy for business owners actually starts. See how Wefinx approaches accounting.

← Back to glossary