The balance sheet reports what a company owns at a specific date (assets, liabilities and equity).
In order for the balance sheet to be deemed "balanced," the total assets
of the company must equal the total liabilities plus equity.
Assets = Liabilities + Equity
The
logic behind it is that whatever the company owns (its assets) must be
financed either through borrowing money (debt), raising capital from
investors (issue shares of stock), or by using retained earnings.
Therefore, the balance sheet shows how the company uses its assets
and how those assets are financed (liabilities part of the
statement).
