Together with other components of the annual financial statement (P&L and the management report), the balance sheet is an important instrument for determining the economic situation of a company. Every company is obligated to produce a yearly balance sheet for the fiscal year. In the balance sheet, assets and liabilities of a company are listed opposite each other, using a cut-off day as the basis of reference.
The company's assets are listed on the left side of the balance sheet, across from the liabilities appearing on the right. Assets are usually structured according to the measure of their liquidity. First, the most unliquidable illiquid assets (real estate and machinery) are listed, followed by the more liquid circulating assets (shares and receivables).
The liabilities side indicates the origins of the capital used for financing the assets listed on the left side of the balance sheet; it is organised into equity, special postings with equity portion, provisions and commitments, as well as deferrals. This structure is generally regulated by section 266(3) of the German Commercial Code.
The balance sheet profit and loss is calculated as the difference between the assets and the liabilities side.