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Balance Sheet

The Balance Sheet provides a snapshot of your business's financial position at a specific date, showing what you own (assets), what you owe (liabilities), and the owner's stake (equity).

The Accounting Equation​

Assets = Liabilities + Equity

This fundamental equation must always balance.

Balance Sheet Structure​

Assets​

Current Assets (convertible to cash within 1 year)

  • Cash and cash equivalents
  • Accounts receivable
  • Inventory
  • Prepaid expenses

Fixed Assets (long-term use)

  • Property, plant, and equipment
  • Less: Accumulated depreciation
  • Vehicles
  • Long-term investments

Liabilities​

Current Liabilities (due within 1 year)

  • Accounts payable
  • Short-term loans
  • Accrued expenses
  • Current portion of long-term debt

Long-Term Liabilities (due after 1 year)

  • Long-term loans
  • Mortgages
  • Bonds payable

Equity​

  • Owner's capital/common stock
  • Retained earnings
  • Less: Owner's draws/dividends

Sample Balance Sheet​

ABC Company
Balance Sheet
As of December 31, 2024

ASSETS
Current Assets:
  Cash                           $25,000
  Accounts Receivable            $15,000
  Inventory                      $30,000
  Total Current Assets                    $70,000

Fixed Assets:
  Equipment                      $50,000
  Less: Accumulated Depreciation($10,000)
  Net Fixed Assets                        $40,000

TOTAL ASSETS                             $110,000

LIABILITIES AND EQUITY
Current Liabilities:
  Accounts Payable               $12,000
  Short-term Loan                 $8,000
  Total Current Liabilities               $20,000

Long-Term Liabilities:
  Equipment Loan                 $30,000
  Total Liabilities                       $50,000

Equity:
  Owner's Capital                $50,000
  Retained Earnings              $10,000
  Total Equity                            $60,000

TOTAL LIABILITIES AND EQUITY            $110,000

Key Metrics from Balance Sheet​

Working Capital​

Current Assets - Current Liabilities Measures short-term financial health

Current Ratio​

Current Assets / Current Liabilities Measures ability to pay short-term obligations

Debt-to-Equity Ratio​

Total Liabilities / Total Equity Measures financial leverage

Next Steps​

Learn about the Income Statement to see how your business performed over a period.