The balance sheet is a photograph of a company's finances on one date. It lists everything the company owns on one side and everything it owes, plus the owners' stake, on the other. The two sides must always be equal.
The accounting equation
Assets = Liabilities + Equity
Everything owned was funded either by borrowing or by the owners.
This is not a rule invented for exams — it simply reflects reality. A company's factory, stock and cash had to be paid for. Whatever was not funded by borrowing was funded by shareholders, directly or through profits kept in the business.
Assets: what the company owns
- Cash and bank balances
- Inventory — goods held for sale, or raw materials to make them
- Receivables — money customers owe but have not yet paid
- Property, plant and equipment — buildings, machinery, vehicles
- Investments — shares or deposits held by the company
Balance sheet builder
Assets must always equal liabilities plus equity. Move the sliders and try to keep it balanced.
Assets
Liabilities & equity
Total assets
₹1,000 Cr
Liabilities + equity
₹1,000 Cr
Balanced
✓ Balanced
Balanced
Liabilities are what the company owes to outsiders: bank loans, bonds, and payables (bills from suppliers not yet paid). These are claims that must be settled before shareholders get anything.
Equity is the owners' stake: the money shareholders put in, plus reserves built up over the years, plus retained earnings kept from past profits. It is the value that belongs to shareholders after all debts are set aside.