One of the most important financial statements is the Balance Sheet – also referred to as a statement of financial position. It is the summary of all your business assets (what your business owns) and liabilities (what your business owes).


Essentially it shows that if you were to sell off all your assets and pay all your debts, how much money you would left over, which is referred to ‘owner’s equity’.

Formula: Owner’s Equity = Assets – Liabilities.

Called a Balance Sheet because at any given moment, each side of the equation must ‘balance’ out.


An asset is a resource with economic value that a business owns or controls with the expectation that it will provide future economic benefits. They can be classified as current, fixed, financial, and intangible.

It can be thought of as something that, in future, can generate cash flow, reduce expenses, improve sales etc., regardless of whether it’s manufacturing equipment or a patent.


A liability is something a company owes, usually a sum of money, which is settled over time through the transfer of economic benefits (money, goods, or services).

They are recorded on the right side of the balance sheet and include loans, accounts payable, mortgages, deferred revenues, bonds, warranties, and accrues expenses.


Owner’s Equity or Shareholders Funds represents the value that would be returned to a company’s shareholders if all of the assets were liquidated and all of the debts paid off.