Balance Sheet Definition and Legal Meaning

On this page, you'll find the legal definition and meaning of Balance Sheet, written in plain English, along with examples of how it is used.

What is Balance Sheet?

(n) Balance Sheet is the monetary representation of the state of affairs of a business entity as on a particular date containing the assets owned by the entity and the liability it has towards the owners and outsiders. Balance sheet has relevance to the date on which it is prepared and changes when the date change

History and Meaning of Balance Sheet

A balance sheet is a financial statement that provides a snapshot of a company’s financial position at a particular point in time by presenting the company's assets, liabilities, and equity. The balance sheet is a standard tool in the accounting industry and is used by investors, creditors, and other stakeholders to analyze the financial health of a company.

The concept of the balance sheet has been around for centuries, with evidence of its use going back to the 15th century. The modern form of the balance sheet was developed in the 19th century as businesses became more complex and needed a way to keep track of their financial status.

Examples of Balance Sheet

  1. XYZ Corporation's balance sheet as of December 31, 2021, shows assets of $1,000,000, liabilities of $750,000, and equity of $250,000.
  2. A bank may require a potential borrower to submit a balance sheet to determine their financial position and creditworthiness.
  3. A company's balance sheet may show a decrease in assets and increase in liabilities if it takes out a loan.

Legal Terms Similar to Balance Sheet

  1. Income Statement - a financial statement that shows a company's revenues and expenses over a specified period of time.
  2. Statement of Cash Flows - a financial statement that shows how an entity's cash balance changes over time.
  3. Statement of Changes in Equity - a financial statement that shows how a company's equity changes over time due to different types of transactions.