The balance sheet of a company is primarily a snapshot of the financial condition at a certain time period. It is a statement of what the company “has” and what it “owes”.

It is important for a manager to understand the basics of a balance sheet. This knowledge helps the manager understand the big picture of the company. It helps the manager make decisions as well as understand why other decisions are made at a higher level.

The balance sheet consists of the basic equation:

Assets = Liabilities + Owner’s Equity

It is called a balance sheet because both sides of the formula are equal. When a company has more assets than liabilities (which is the goal), the owner’s equity is the difference.

The assets and liabilities each have several parts. The assets consist of “current” assets and “long term” assets. The liabilities also consist of both short and long term obligations.

The balance sheet module goes into sufficient detail to be able to read and understand a balance sheet of a company.