The three core financial statements

The balance sheet is a snapshot — it shows the financial position of a company on one specific date (e.g., 31 December). It never covers a period.

The identity that always holds:

Assets = Liabilities + Equity

• Assets: what the company owns or controls — cash, receivables, inventory, property.
• Liabilities: what the company owes to third parties — loans, trade payables, bonds.
• Equity: the owners' residual claim — assets minus liabilities. Also called net assets or book value.

If you are given two of the three figures, you can always compute the third by rearranging A = L + E.

The equation stays balanced because every transaction is recorded through double-entry bookkeeping: it affects at least two accounts, never just one. Asset accounts (like cash) carry a normal debit balance — an increase is recorded as a debit, a decrease as a credit. Liability and equity accounts work the other way round, with a normal credit balance. A €10,000 cash sale, for instance, debits Cash (asset up) and credits Revenue (equity up via retained earnings) — two accounts, equation still balanced.