💼 Balance Sheet Basics

If the income statement tells you how much you earned,
the balance sheet tells you what you own and owe at a specific moment.
Think of it like a snapshot of your business’s financial health.

⚖️ The Magic Equation

Assets = Liabilities + Equity

It looks simple, but this formula holds every company together.

Assets – everything your business owns
(cash, computers, products, furniture)
Liabilities – everything your business owes
(loans, unpaid bills, taxes)
Equity – what’s left for the owners after debts are paid

It’s like saying:

“What I have” = “What I owe” + “What’s truly mine.”

🏠 Everyday Analogy

Imagine your own life as a mini-business.

You own:

a phone worth $400
a bike worth $300
and have $100 cash

That’s $800 in assets.

You owe:

$200 to a friend who lent you money

Then your equity (your real worth) is $600.

Category	Example	Amount ($)
Assets	Phone, Bike, Cash	800
Liabilities	Loan from friend	200
Equity	Your net worth	600

✅ It balances: 800 = 200 + 600.

Classroom whiteboard divided into Assets and Liabilities + Equity, showing icons like cash, laptop, bicycle on the left and loan documents with money bags on the right, connected by colorful arrows representing balance. — The balance sheet equation — Assets on one side, Liabilities and Equity on the other — always in perfect balance.

🏢 Business Example

Let’s say a small bakery called Sweet Days Co. starts with this:

Assets	Liabilities + Equity
Cash – $5 000	Bank Loan – $2 000
Equipment – $3 000	Owner’s Equity – $6 000
Inventory – $2 000

Total Assets = $10 000
Liabilities + Equity = $8 000 + $2 000 = $10 000 ✅ Balanced!

🧠 Why It Matters

A balance sheet shows:

Can the business pay its bills?
Does it own more than it owes?
How much value belongs to its owners?

Investors and managers use it to judge whether a company is healthy or over-borrowed.
If assets shrink or debts grow too fast, it’s a red flag.

🧩 Quick Exercise

Look around your house — list 5 things you own (assets).
Add any money you owe (debts).
Subtract debts from assets — that’s your personal equity.
Now imagine running a lemonade stand and make the same table!

🌍 Real-World Insight

Even giant companies like Apple or Toyota rely on the same formula.
They just have bigger numbers — billions in assets and liabilities.
But at the end of the day, it’s still Assets = Liabilities + Equity.

Once you master this, you can read any company’s balance sheet — from your school club to the world’s largest corporations.

💬 Remember:
If the two sides don’t match, something’s missing — and the numbers will tell you exactly where to look.