What is a balance sheet?
A balance sheet is the financial statement that shows, at a single date, what a company owns, what it owes and what is left for its owners. It lists assets, liabilities and equity, and it always balances: total assets equal total liabilities plus equity. IFRS calls it the statement of financial position.
Also calledstatement of financial position
Compare the softwareBest general ledger software →All 14 ERP and general ledger vendors →
- Equation
- Assets = liabilities + equity
- Shows
- Position at one date
- IFRS name
- Statement of financial position
How a balance sheet works
Assets are split into current assets, such as cash, receivables and inventory expected to turn into cash within a year, and non-current assets, such as property, equipment and intangible assets. Liabilities are split the same way, from supplier balances and short-term loans to long-term borrowings and lease liabilities. Equity is share capital plus retained earnings, which grow with each period's profit and fall with losses and dividends. The balance sheet is prepared from the asset, liability and equity accounts in the general ledger, and each balance is reconciled to supporting evidence, such as bank statements or a fixed asset register, before the accounts are signed off. Lenders and investors read it for liquidity and solvency, using measures such as working capital and debt to equity.
Common questions
Why does a balance sheet always balance?+
Because of double-entry bookkeeping: every transaction changes at least two accounts by equal amounts, so the total of assets always equals liabilities plus equity. If it does not balance, an entry has been posted wrongly.
What are current and non-current assets?+
Current assets are expected to be used or turned into cash within twelve months, such as cash, receivables and inventory. Non-current assets are held for longer, such as buildings, equipment and software.
How often is a balance sheet prepared?+
At least once a year for the annual accounts. Most companies also prepare one every month as part of the month-end close, with each account reconciled.
Software that produces the balance sheet
XeroCloud accounting for small businesses with a large app ecosystem.Profile →
Intuit QuickBooksSmall business accounting covering books, invoicing and payroll.Profile →
NetSuiteCloud ERP for mid-market companies outgrowing basic accounting.Profile →
Sage IntacctMulti-entity cloud financials with dimensional reporting.Profile →
BlackLineEnterprise close automation for reconciliations and journal entries.Profile →Part of Accountio’s accounting technology coverage · Glossary
