Why does a balance sheet tally?

Answer 1

The balance sheet is a simple and at the same time very complex and detailed account of the company. The balance sheet shows the amount of assets a company holds, it shows the company's liabilities, or what they owe for one reason or another (not monthly expenses) and what the owners or stakeholders have in the company. Remember the accounting equation.

Assets = Liabilities + Owners Equity

Or it could also be stated

Assets - Liabilities = Owners Equity

Written this way makes much more sense to me, what it tells me is that after Liabilities are removed from the company's assets (assets - liabilities) we know how valuable the company is to the owners and whether or not they can meet their obligations to Stock Holders and Creditors.

---- I seriously misread the question as "what" instead of "why". However I will leave my previous answer as I think it also answers the question of "why" as well as "what".

Another quick reason is, if you take a company's assets deduct the liabilities (what the company owes) you will achieve what the company is worth once all debts are paid (aka Equity). Therefore it stands to reason if you add the Equity of a company to what it owes (liabilities) it's going to give you the amount of assets a company has. For every transaction there is an equal and opposite transaction.

If I buy a car, that car is an asset, even though the note I will be paying on the car is considered a liability. For example, I purchase a car for $50,000 (nice car huh), I pay $10,000 cash for that car, the way it's going to look on my books is as follows.

Assets (car $50,000) = Liabilities (note payable $40,000) + Owners Equity (Car $10,000)

with just the dollar amounts it looks like this.

$50,000 = $40,000 + $10,000

It shows that if I sale the car for $50,000, pay what is left owing of $40,000 I will have equity of only $10,000. These figures change as payments are made and as the liability decreases, my equity will increase.