The balance sheet provides a snapshot in time of an organisation. It is often referred to as the Statement of Financial Position and is generally a backward glance at the business, that is, how it looked at a particular date.

 

The Balance Sheet shows the balances of the Assets, Liabilities and Equity of the organisation.

Assets – Liabilities = Equity

 

Assets are things that an organisation owns. Some examples of assets, are cash at the bank, accounts receivable (debtors), plant and equipment, land and buildings and motor vehicles.  Some organisations will have all of these assets and some may only have a few.

 

Liabilities are things that the organisation owes to others.  Some examples include Accounts Payable (Creditors), GST, PAYG, Superannuation, bank loans, hire purchase loans and chattel mortgages.

 

Equity is the difference between the assets of the company and the liabilities of the company.  It indicates that if you closed the organisation down on the date of the balance sheet, you would have the amount left over that is in equity.  The higher this number is, the better off your organisation is. Another term for Equity is your Net Worth.

 

In your Equity section are Retained Earnings and Current Year Earnings.  This is the cumulative value of your business’s profits and losses over all of the years it has been operating.  It is generally not cash, but rather the funds used previously to help build your assets.

 

The balance sheet is an essential statement for many small businesses since it provides vital insights into the company's financial health.  This is why, if you intend to expand your business, you must be prepared to submit accurate and up-to-date financial reports on a regular basis.

 

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