balance sheet
A balance sheet is a snapshot of what a business owns and owes on a single day, and it is the fastest way to see if it is actually healthy.
In plain English
A profit and loss statement tells you how a business performed over a period. A balance sheet tells you what it is standing on right now.
It has three parts and they always balance, which is where the name comes from. What the business owns, which are its assets. What it owes, which are its liabilities. And what is left for the owners, which is the equity.
Assets minus liabilities equals equity. Always. If it does not balance, somebody has made an error or is hiding something.
What makes it powerful is that it exposes what a profit figure can hide. A business showing healthy profits while its balance sheet fills with unpaid invoices and unsold stock is not thriving. It is converting sales into things it cannot spend, and it will run out of cash while looking successful.
It is also exactly the calculation you should do on yourself, and it is called net worth. What you own, minus what you owe.
Look at it once every six months, for your business and for your life. It is the single most honest page in finance, because it cannot be argued with. It simply is.
A business shows ₦8 million profit. Its balance sheet reveals ₦12 million of unpaid customer invoices and ₦6 million of unsold stock. The profit is real and none of it is available, which is how a profitable business fails to pay salaries.
Questions people ask
What is the difference between a balance sheet and a profit and loss?
A profit and loss covers a period and shows performance. A balance sheet is a single moment and shows position. You need both, and they answer different questions.
Why must it balance?
Because everything a business owns was funded either by borrowing or by its owners. Assets equal liabilities plus equity, by definition.
Do individuals have a balance sheet?
Yes, and it is called your net worth. What you own minus what you owe. Calculating it twice a year tells you more than any budget.
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