Balance Sheet Principles

“A balance sheet is a statement of a company’s assets, liabilities and equity at a given time.“ Behind every balance sheet, anywhere in the world, there is a certain logic. Which is actually quite simple. We will explain it in this section. And don’t forget: Returning again and again to this basic logic is essential to understanding this important financial document, and ensures that you will never be lost.

Liabilities is about where the money comes from, assets is about where the money goes to.

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The liabilities tell you how a business is financed. You can think of it as a list of investors. Which investor gave what sum of money? Is it mostly shareholders who finance? Or did this company rather opt for bank debt?

The assets provides information about what happened to the investors’ funds. You can think of it as a list of investments. What was invested in? In buildings? In machines? In stock?

Assets = Liabilities

You can’t spend money without first getting it from somewhere. Therefore, it is always true that assets equals liabilities.