What Is a Balance Sheet? And Why Does Your CPA Ask for It?

Question: My CPA always asks for a balance sheet, but I don’t know what that is exactly.

Answer: A balance sheet is one of the two standard financial statements that describes the condition of your business. (The other is an income statement.) Your balance sheet is a snapshot of a particular day in your business, and the date is at the top.

A balance sheet lists your assets, liabilities and equity. Assets are what you own, liabilities are what you owe and equity is the difference between the two. On a very basic level, your equity is what your business is worth on that day.

As an example, consider owning a home. If you paid $350,000 for a home (your asset) and have a mortgage with a current balance remaining of $200,000 (your debt or liability), you have equity in your house of $150,000 ($350,000 minus $200,000). In a simplistic sense, this is the balance sheet of your home. It is similar to the balance sheet of your business.

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