Balance Sheet
What is a Balance Sheet?
A balance sheet—also known as a statement of financial position—is a financial statement that shows what a business owns, owes, and what is left for the owners at a specific point in time (usually the end of a financial year).
📘 Definition:
A balance sheet provides a snapshot of a company’s assets, liabilities, and equity on a specific date.
It follows the fundamental equation:
Assets = Liabilities + Equity
🔍 Components of a Balance Sheet:
🔹 1. Assets – What the company owns
| Type | Examples |
|---|---|
| Current Assets | Cash, trade receivables (debtors), inventory |
| Non-Current Assets | Property, plant, equipment, vehicles, patents |
🔹 2. Liabilities – What the company owes
| Type | Examples |
|---|---|
| Current Liabilities | Trade payables (creditors), short-term loans, taxes owed |
| Non-Current Liabilities | Long-term loans, mortgages, deferred tax |
🔹 3. Equity – What’s left for the owners (aka net assets)
| Type | Examples |
|---|---|
| Share capital | Funds invested by shareholders |
| Retained earnings | Accumulated profits/losses |
🧾 Example of a Simple Balance Sheet:
| Balance Sheet as at 31 December 2024 | Amount (£) |
|---|---|
| Assets | |
| Cash | 5,000 |
| Trade receivables | 10,000 |
| Inventory | 7,000 |
| Equipment | 20,000 |
| Total Assets | 42,000 |
| Liabilities | |
| Trade payables | 8,000 |
| Bank loan (long term) | 12,000 |
| Total Liabilities | 20,000 |
| Equity | |
| Share capital | 10,000 |
| Retained earnings | 12,000 |
| Total Equity | 22,000 |
| Total Liabilities + Equity | 42,000 |
📌 Note: The total assets must always equal the total of liabilities and equity—this is the basis of the “balance” in the balance sheet.
📈 Why It Matters:
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Shows financial position at a glance.
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Used by investors, lenders, and owners to assess solvency, liquidity, and capital structure.
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Required for company reporting and tax purposes.