Understanding a Balance Sheet 

Understanding a balance sheet is essential for anyone working in accountancy. The balance sheet and profit & loss statement are two of the most important financial documents in the world of accountancy. Though often mistaken as the same thing, there are important differences between the two. Balances sheets provide a snapshot of where the company currently stands financially. Profits, loss, cash-on-hand and how the organization is performing at that precise moment. By contrast, profit and loss accounts feature information for a specific period of time – usually produced quarterly or annually. Accountants must know how to create and work with both documents, so as to guide the business toward better profits and minimized losses.

This tutorial demonstrates how a professional balance sheet is created from scratch, while examining balance sheet meaning from a wider financial perspective. The document is broken down into its core components to help build a strong understanding of its purpose and value. Balance sheet analysis is also covered in-depth, along with the relationship between balance sheets and profit & loss accounts. The importance of the balance sheet from a modern business perspective is then summarized.