Definition of Balance Sheet

The balance sheet is a statement showing the true financial position of the business as of a given date. It is prepared to show the organisation’s assets, liabilities, and capital.

The balance sheet equation is:

Assets = Capital + Liabilities

The balance sheet is not an account hence; the assets are classified on the right while the capital and liabilities are grouped on the left if the conventional “T” format is used.  Items that are left in the trial balance after preparing the trading profit and loss accounts, together with the net profit or net loss are used.