The Balance Sheet is one of the three essential measurement reports for the performance and health of a company. The other is the Profit and Loss Account and the Cashflow Statement. The Balance Sheet is a snapshot in time of who owns what in the company, and what assets and debts represent the value of the company. It can only be a snapshot because as the value is always changing. The Balance Sheet is where to look for information about short-term and long-term debts, the ratio of debt to equity, reserves, stock values, capital assets, cash on hand, along with the value of shareholders' funds. The term balance sheet is derived from the simple purpose of detailing where the money came from, and where it is now.

The balance sheet equation is: Capital + Liabilities (where the money came from) = Assets (where the money is now). The Balance Sheet does not show how much profit the company is making the Profit and Loss Statement (P&L) does this, although previous years' retained profits will add to the company's reserves, which are shown in the balance sheet.