The balance sheet is a public annual statement of particular importance to shareholders and creditors.

It is composed of two halves whose totals always balance. The first half shows the assets of a company, which are the possessions of a company, like factories and machines. These will be invested and used to bring economic benefits to the business. The second half shows the liabilities of a company together with its capital or shareholders' equity.

Liabilities are what the company owes other companies or financial organisations or individuals, like loans, taxes, pensions that will be paid in the future to employees, bills that will be paid to suppliers. In this particular case, the company may be granted a credit when suppliers allow a certain period of time before the company settles the account and pays for the goods or services received.

Assets are shown as debits - they were once bought by debiting cash or capital - whose total should be the same as the total of credits - which are liabilities and capital.

Shareholders' equity is the money shareholders own. One part is called share capital which is what the company earns by selling its shares. Another part is called retained earnings which are the profits of the company which have not been given or paid out to shareholders in the form of dividends, because reinvested.