Balance Sheet
Definition
A snapshot of what your business owns (assets), what it owes (liabilities) and what is left for the owners (equity) on a specific date.
Want a deeper explanation?
Formula
Assets = Liabilities + EquityMost owners read the P&L and skip the balance sheet, but for an inventory business the balance sheet is where the cash is hiding. Inventory, receivables and loans all live here.
A healthy balance sheet has every account reconciled to something real: a bank statement, a count, a loan statement. Watch for: inventory, clearing account or "uncategorized" balances that grow month after month, which signal the books are not tied out.
Example
On December 31: $80,000 cash + $260,000 inventory + $15,000 receivables = $355,000 of assets, funded by $140,000 of liabilities and $215,000 of equity.