The Profit & Loss Statement describes you how your business is performing at that particular time and the Balance Sheet is the statement that tells you about the long-term health and strength of your business. The Balance Sheet shows whether you can meet your obligation as they come due, how much you are indebted to others and your prospects for staying in business.

Assets = Liabilities + Equity. This is the accounting equation. Assets = your stuff. Liabilities and equity = how you paid for your stuff. Liabilities indicate how much of your stuff that you have paid for with other people’s money. Equity shows how much of your stuff that you have paid for with your own money