A balance sheet is a type of document used in accounting to show the financial position of the business at the time when the document was drawn up. It is a summary of the liabilities and assets of a company, business partnership or sole proprietorship at a specific time, showing what the business is worth. Balance sheets are often drawn up at the end of the financial quarter or year. A balance sheet can be considered a snapshot of the accounts of a particular business at a particular time. Balance sheets may also be used by individuals in order to take stock of their personal accounts.

Balance sheets are usually composed of three parts: assets, liabilities and equity.

The assets section lists what the business currently owns or is owed. Current assets are those that are held at the time when the balance sheet is created, but which will not be kept in the long-term. They include cash and stock in the inventory. Fixed assets are more permanent. They can be divided into tangible and intangible fixed assets. Tangible assets have a physical presence and include assets such as buildings and machinery. Intangible assets are less easy to define and estimate. They include patents and long-term investments.

The liabilities section lists what the business currently owes. Current liabilities are those that must be paid in the near future, while long-term liabilities will not need to be paid until further in the future, usually not before the end of the current financial year. Liabilities include bills that the business needs to pay, loans and other debts.

The third section shows the equity of the business. This is the net worth or capital of the company and it should be equal to the difference between the assets and the liabilities. The equity of the business is the amount that is owing to the owners and/or to the shareholders. It is the amount that they have invested in the business.

Balance sheets are used in the annual reports produced by limited companies to provide a summary of the company's current financial situation. Limited companies are legally required to publish their balance sheets in these reports. Balance sheets may also be used by the business owner to assess the current worth of their business, or to allow shareholders, creditors or investors to assess the worth of the business. Balance sheets can also be a useful tool for businesspeople to analyze the way in which their business is being managed and to plan how they will grow their business or improve the way it is managed. There are a number of ways in which balance sheets can be analyzed in order to better understand the financial structure and health of the company.

Balance sheets can be used to judge how well a business is doing either by comparing balance sheets that were drawn up at different times or by calculating accounting ratios using the figures on the balance sheet. For example, the ratio of the current assets and current liabilities may be calculated. This is known as the current assets ratio.

A balance sheet shows how solvent a business currently is, how much capital is being used and how liquid the assets are. The balance sheet shows where the funding for the business is coming from and how it is currently being spent. The assets section shows how the funding is currently being used. The liabilities and equity sections show the sources from which the business has raised funds and from which money is coming into the business. The assets should be balanced with the liabilities and equity because the amount of money that has been put into the business should be the same as the amount that has been spent by it. The balance sheet is often presented in two sections, with the liabilities and equity listed together against the assets in order to make it easy to check how well they balance.