Lessons · Accounting · the balance sheet
The balance sheet: what you have and what you owe, on one day
A balance sheet is a snapshot on one date: assets on one side, liabilities and equity on the other, and the two sides total the same because of the equation.
Hone is a place to practise a career, one idea a day. This is one of its lessons, written out in full and free to read without an account.
What it is for
The bank asks for it before it lends, because it wants to know what the business has and who already has a claim on it. The date at the top is not decoration; a week later the numbers are different.
How to think about it
List and total the assets. List and total the liabilities. Equity is assets less liabilities. Then check: liabilities plus equity must equal assets, or an entry somewhere is missing a side.
Worked example
Assets: cash 6,000 + receivables 4,000 + equipment 15,000 = 25,000What the business has, on this date.
Liabilities: payables 3,000 + loan 10,000 = 13,000What it owes.
Equity = 25,000 − 13,000 = 12,000The owner's share.
Check: 13,000 + 12,000 = 25,000 → balancedThe equation, holding.
Your turn
Assets 41,000, equity 17,500. Write the line with the liabilities filled in.
Equity = 41,000 − = 17,500
Solve one, graded on the server
The trap
Reading it as a period. Sales for the year is a flow; cash in the bank is a level. A balance sheet dated 31 December says nothing about 30 December or 1 January.