The balance sheet, also known as the statement of financial position, is a snapshot of a company's financial condition at a single point in time. It presents a summary listing of a company's assets, liabilities, and owners' equity. The balance sheet is prepared as of the last day of the business year. Therefore, it corresponds to the end of the time period covered by the income statement.

To understand the balance sheet, its purpose, and its contents, several accounting concepts need to be examined. First of all, the balance sheet represents the accounting equation for a company. The accounting equation is a mathematical expression that states the following:
Assets = Liabilities + Owners' Equity

Stated more fully, this means that the dollar total of the assets equals the dollar total of the liabilities plus the dollar total of the owners' equity. The balance sheet presents a company's resources (i.e., assets, or...