What is a balance sheet in financial statements?

A balance sheet is a financial statement that provides a snapshot of an entity's financial position at a specific point in time. It summarizes the company's assets, liabilities, and equity, presenting a clear picture of what the company owns and owes.

Assets represent everything the company owns that has value, including cash, inventory, and property. Liabilities encompass all debts and obligations the company must settle in the future, such as loans and accounts payable. Equity represents the owner's interest in the company, calculated as total assets minus total liabilities. The balance sheet follows the fundamental accounting equation: Assets = Liabilities + Equity. This equation helps ensure that the balance sheet is balanced, reflecting that all resources (assets) are financed either through debt (liabilities) or by the owner's capital (equity).

In contrast, summaries of sales revenue, cash flows, or market share and growth potential do not encompass the elements required to define a balance sheet. While these other financial documents have their significance, they serve different purposes and do not provide the specific overview of financial position that a balance sheet does.