Balance Sheet

A balance sheet is a snapshot on one date, not a record of a period, which is why it is paired with the profit and loss statement and the cash flow statement that cover the year between two such snapshots. The identity always holds because equity is defined as the residual, so a balance sheet balancing proves arithmetic, not honesty. Assets are recorded largely at historical cost less depreciation, so a factory bought in 1998 sits at a number bearing no relation to what it would fetch today. Reading a balance sheet as a valuation of the company is the most common beginner error; it is a record of transactions, not an appraisal.