Balance Sheet
Definition
A balance sheet is a financial statement that reports a company's assets, liabilities, and shareholders' equity at a specific point in time. It provides a snapshot of what a company owns, what it owes, and the residual value belonging to owners, following the fundamental equation: Assets = Liabilities + Equity.
Overview
The balance sheet is one of the three core financial statements and provides a snapshot of financial position at a single point in time, unlike the P&L, which covers a period. It follows the fundamental accounting equation: Assets = Liabilities + Shareholders' Equity.
For startups, the most important balance sheet items are typically cash and cash equivalents (which determine runway), accounts receivable (revenue earned but not yet collected), accounts payable (bills owed), and equity (showing how much capital has been raised and how much has been retained or lost through operations).
While early-stage founders often focus primarily on the P&L, investors and lenders examine the balance sheet to assess financial health. A balance sheet showing growing receivables relative to revenue may signal collection problems, while a sharp drop in cash despite moderate burn may reveal hidden liabilities or timing issues.
Example
A startup balance sheet shows $500K in assets (mostly cash), $50K in liabilities (accounts payable and accrued expenses), and $450K in equity (founder investment plus retained losses).
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