Balance sheet

What is a balance sheet?

A balance sheet is a snapshot of what a company owns, what it owes and the owners' equity on a given date. Assets equal liabilities plus equity. Assets include cash, receivables, inventory, vehicles and equipment; liabilities include payables, debt and customer deposits. Where the P&L covers a period, the balance sheet shows a single point in time.

Why it matters to a revenue leader

Commercial decisions land on the balance sheet. Generous payment terms grow accounts receivable. Advance billing on service agreements creates deferred revenue, a liability that means cash came in before the work was done. Equipment bought to serve a new contract becomes an asset that has to earn its keep. Lenders and sponsors read the balance sheet to judge whether growth is consuming cash faster than the business makes it.

A fire protection company ends the quarter with $3 million of cash, $7 million of receivables and $5 million of vehicles and equipment, or $15 million of assets. It owes $9 million in debt and payables, leaving $6 million of equity. If customers pay $1 million of receivables, cash rises and receivables fall by the same amount, so total assets stay at $15 million.