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Balance Sheet
Definition
A balance sheet is a financial statement that summarizes a person or organization's assets, liabilities, and equity at a specific point in time.
Explanation
A balance sheet follows the formula: Assets = Liabilities + Equity. It provides a snapshot of financial health and is used by lenders, investors, and financial planners. Personal balance sheets track individual net worth, while business balance sheets are formal financial statements.
Reviewing your balance sheet annually helps track financial progress and identify areas needing attention, like reducing debt or increasing savings.
Example
A personal balance sheet showing $500,000 in assets and $200,000 in liabilities indicates a net worth of $300,000.