A company needs assets to run its operations. To buy them, it has to raise money. This comes from two sources- debt (borrowings) and equity. Debt brings about an obligation on the company, which it has to settle in the future. It is therefore recorded as a liability. Equity on the other hand is contributed by shareholders. It too is money that the company has to repay, but it is not a liability in the traditional sense because it also confers rights of ownership on the shareholders. It is therefore recorded separately. Since assets are completely financed by these two sources, the value of assets must be equal to the combined value of debt and equity. The balance sheet is nothing but a detailed representation of this simple relationship.