In formal bookkeeping and accounting, a balance sheet is a statement of the
financial value (or "worth") of a business or other organisation (or person)
at a particular date, usually at the end of its "fiscal year," as distinct
from a profit and loss statement (or "P&L"), which records income and
expenditures over some period. Therefore a balance sheet is often described
as a "snapshot" of the company's financial condition at that time.
The balance sheet has two parts: assets on the left-hand ("debit") side or
at the top and liabilities on the right-hand ("credit") side or at the
bottom. The assets of the company -- money ("in hand" or owed to it),
investments (including securities and real estate), and other property --
are equal to the claims for payments of the persons or organisations owed --
the creditors, lenders, and shareholders. This standard format for balance
sheets is derived from the principle of double-entry bookeeping.
According to the basic accounting equation:
assets = liabilities + equity
assets - liabilities = equity.
Equity, which is the shareholders' interest (= "net worth"), may not reflect
the company's true value, since assets are normally shown (= "carried") on
the balance sheet at what the company paid for them, without any adjustment
for increases or decreases in their value since then.