A balance sheet forms an important part of a financial statement. It provides a snapshot of the firm's financial position at a fixed point in time. The balance sheet equation states that Assets = Liabilities + Shareholder's Equity. The balance sheet must always balance i.e. the total value of assets must always equal to the sum of the total value of liabilities plus shareholder's equity. The three portions of the balance sheet give an indication as to what resources the company owns (assets), the resources it owes (liabilities) and lastly the amount of capital invested in it by shareholders (shareholder's equity). Therefore the balance sheet must always balance because assets represent the uses of a cmpany's funds while liabilities and shareholders' equity represent sources of funds.