Three parts must be distinguished in the sacraments:

1. The Outward and Visible Sign.

Each one of the sacraments contains an external element, namely, the water in baptism, and the bread and wine in the Lord's Supper. Where these elements are administered and appropriated, there we have the entire external matter of the sacrament. This is sometimes called the sacrament as, for instance, when unbelievers are said to receive the sacrament; but it is not the whole of the sacrament, nor even the most important part of it.

2. The Inward Spiritual Grace Signified.

A sign naturally points to something that is signified, and this constitutes the internal matter of the sacrament. This is variously indicated in Scripture, as the covenant of grace, Gen. 17:11, the righteousness of faith, Rom. 4:11, the forgiveness of sins. Mark 1:4; Matt. 26:28, faith and repentance, Mark 1:4; 16:16, communion with Christ in His death and resurrection, Rom. 6:3, 4; Col. 2:11, 12.

3. The Union between the Sign and the Thing Signified.

It is this union between the sign and the thing signified that really constitutes the essence of the sacrament. This should not be conceived as physical, as if the external matter naturally included the internal (Roman Catholic), nor local, as if both were present in the same space (Lutheran), but spiritual, so that, where the sacrament is received in faith, the grace of God accompanies it.--Louis Berkhof, Manual of Christian Doctrine