They are some characteristics of the balance sheet that we can immediately point out. First of all, the balance sheet represents a point in time. It tells me the company's assets at a point in time. The company's liabilities at a point in time and the company's equity at a point in time.

It's thus describes the company's financial position.

Next up you will notice that the assets must equal liabilities and equity now, why is this? Well, first of all, the company needs a source of funding and the source of funding is your liabilities and equity. Great, so we've got some cash from somewhere. What did we do with that funding? Well, we used it to buy assets.

So the two sides must equal if your sources are funding equal your uses of funding.

Now given that assets equals liabilities plus equity your balance sheet must always balance and every balance sheet will always balance.

For a balance sheet to balance for the assets to equal the liabilities plus equity, every transaction that goes through the balance sheet is going to have at least two effects on the balance sheet. If a transaction causes an increase in an asset account, there has to be a corresponding increase in a liability or equity account to keep our balance sheet in balance.

If we use the example of owners injecting capital into the business cash will go up. So this is an increase in assets the left hand side of our equation and shareholders equity will also go up. So an increase in equity the right hand side of our equation. Thus after this transaction our balance sheets still balances, assets of increased but so has equity.