A balance sheet is a financial document that shows a startup’s assets, liabilities, and equity at a specific point in time. The purpose of the balance sheet is to give an overview of a startup’s financial position and help founders make decisions about how to allocate resources.

The balance sheet is divided into two main sections: assets and liabilities. Assets are the resources a business owns, such as cash, inventory, and equipment. Liabilities are the debts a business owes, such as loans and accounts payable.

The difference between assets and liabilities is the startup’s equity, also known as net assets or shareholders’ equity. Equity represents the value of the business that belongs to the shareholders.

To read a balance sheet, start by looking at the top section, which shows the startup’s assets. Then look at the bottom section, which shows the startup’s liabilities. Subtract the liabilities from the assets to find the startup’s equity.

It’s also important to look at the specific items that make up the assets and liabilities sections. Look for trends or unusual items that may indicate potential problems or opportunities.

It’s also worth noting that assets are divided into current assets ( assets that can be converted to cash within a year, like cash, accounts receivable) and non-current assets ( assets that can’t be converted to cash within a year, like property, equipment, patents). 

Similarly liabilities are divided into current liabilities (liabilities that have to be paid within a year, like accounts payable) and non-current liabilities (liabilities that don’t have to be paid within a year, like long term debt).