What goes on a balance sheet? How to understand and fill it out
At a glance
- A balance sheet shows three things on one date: what your business owns (assets), what it owes (liabilities), and what is left for the owners (equity).
- It always follows one rule: Assets = Liabilities + Equity. If the two sides don’t match, something is missing or misrecorded.
- Assets and liabilities each split into current (within a year) and non-current (longer than a year).
- Once it’s complete, ratios like the current ratio and debt-to-equity turn the balance sheet into a health check.
If you want to understand your company’s financial health, you need to know what goes on a balance sheet.
The balance sheet is one of the core financial statements in business. In short, it is a snapshot of what your company owns, what it owes, and the value left for you or your shareholders.
A U.S. Bank study, shared by Forbes, found that 82% of business failures trace back to poor cash flow management. A firm grip on your balance sheet helps you see those problems coming. It is a survival skill, not just an accounting chore.
This guide explains exactly what goes on a balance sheet, how to lay it out, and what to do once it’s filled in.
What is a balance sheet?
A balance sheet is a financial report showing your business’s assets, liabilities, and equity at a specific point in time. It answers three questions:
- What does your business own? (Assets)
- What does your business owe? (Liabilities)
- What’s left after debts are paid? (Equity)
Every balance sheet follows the basic accounting equation:
Assets = Liabilities + Equity
This formula keeps everything in balance. So if the numbers don’t add up, something is missing or recorded incorrectly.
The other statements cover a stretch of time. The income statement shows what you earned over a period, and cash flow statements track how cash moved. The balance sheet freezes a single moment and shows exactly where the business stands.
What goes on a balance sheet?
The balance sheet has three main parts: assets, liabilities, and owner’s equity.
1. Assets
Assets are the valuable resources your business controls. You use them to generate revenue. They are also listed in order of liquidity, meaning how quickly you can turn them into cash.
Assets fall into two groups.
Current assets
You expect to convert these to cash or use them up within one year. As a result, they show your short-term liquidity.
- Cash and cash equivalents: Money in your bank accounts, such as checking balances, plus short-term investments you can cash out immediately. This is your most liquid asset.
- Accounts receivable: Money customers owe you when you’ve delivered products or services but haven’t been paid yet.
- Inventory: Goods held for sale. For example, a retailer’s inventory is the stock on its shelves. For a manufacturer, it includes raw materials, work in progress, and finished products.
- Prepaid expenses: Payments made in advance. For instance, six months of rent paid upfront is a prepaid expense that becomes a regular expense over time.
Non-current assets (long-term assets)
You expect to hold these for more than a year. Therefore, they represent the long-term value of your business.
- Property, plant, and equipment (PP&E): Buildings, land, vehicles, and machinery. Over time, their value drops through wear and tear, a process called depreciation.
- Intangible assets: Non-physical assets with value, such as patents, trademarks, and copyrights. Their value also declines over time, a process called amortization.
- Long-term investments: Stakes in other companies or securities, when you plan to hold them for over a year.
2. Liabilities
Liabilities are your company’s financial obligations, meaning the debts it owes to others. Similarly to assets, they are grouped by when they fall due.
Current liabilities
Your business must pay these within one year.
- Accounts payable: The flip side of accounts receivable. It’s money you owe suppliers for goods or services you’ve received but not yet paid for.
- Short-term loans: Loans or credit lines, such as a short-term bank facility, due within the year.
- Accrued expenses: Costs you’ve incurred but not yet paid, such as employee wages earned before the period closed.
- Deferred revenue: Payments received for products or services you haven’t delivered yet. It’s a liability because you still owe the customer.
Non-current liabilities (long-term liabilities)
These debts fall due more than a year from now. Because of that, businesses often use them to fund large, long-term investments.
- Long-term loans: Mortgages, vehicle loans, or bank loans with repayment terms longer than a year.
- Bonds payable: Money the company has borrowed when it issues bonds to investors.
3. Owner’s equity
Owner’s equity is the share of the company’s assets that belongs to the owners. In other words, it equals total assets minus total liabilities. In a corporation, it’s usually called shareholders’ equity.
Owner’s equity has three main parts:
- Owner’s capital (or common stock): The money owners have invested in the business.
- Retained earnings: Total net income earned over time, minus dividends or distributions paid out. This figure links the income statement to the balance sheet. A positive balance shows the business has been profitable and reinvested those profits.
- Drawings (or distributions): Money owners have taken out for personal use. As a result, drawings reduce total equity.
Balance sheet template and example
Here’s a simple balance sheet layout you can use:
| Balance sheet | As of [date] |
|---|---|
| Assets | |
| Current assets | $XXX |
| Non-current assets | $XXX |
| Total assets | $XXX |
| Liabilities | |
| Current liabilities | $XXX |
| Long-term liabilities | $XXX |
| Total liabilities | $XXX |
| Equity | |
| Owner’s or shareholders’ equity | $XXX |
| Total equity | $XXX |
| Total liabilities + equity (equals total assets) | $XXX |
Example
Imagine you run a small marketing agency. Here is its balance sheet as of December 31:
| Category | Item | Amount |
|---|---|---|
| Assets | Cash | $15,000 |
| Accounts receivable | $8,000 | |
| Equipment | $12,000 | |
| Total assets | $35,000 | |
| Liabilities | Accounts payable | $6,000 |
| Bank loan | $5,000 | |
| Total liabilities | $11,000 | |
| Equity | Owner’s equity | $24,000 |
| Total equity | $24,000 | |
| Check | Total liabilities + equity | $35,000 |
The sheet balances: $35,000 in assets equals $11,000 in liabilities plus $24,000 in equity.
What to do after filling out a balance sheet
A finished balance sheet is a diagnostic tool. The most useful thing you can do with it is calculate financial ratios. These reveal your liquidity, efficiency, and solvency.
Current ratio
First, this ratio measures whether you can pay short-term debts.
- Formula: Current assets / Current liabilities
- How to read it: Above 1.0 means you can cover your current debts. Well below 1.0 is a warning sign that cash may run short.
Debt-to-equity ratio
Next, this ratio shows how much of the business is financed by debt instead of owner investment.
- Formula: Total liabilities / Total owner’s equity
- How to read it: Lower is generally safer. It means the business relies more on owner money than borrowed money. The agency in our example scores about 0.46.
Return on assets (ROA)
Finally, this ratio measures how efficiently your assets generate profit. However, you need figures from both the balance sheet and the income statement.
- Formula: Net income / Total assets
- How to read it: A higher ROA means more profit per dollar of assets. It’s most useful when you compare it against competitors in your industry.
Get expert help to analyze your balance sheet
Building a balance sheet is one thing. However, understanding what it’s telling you is another, because accounting gets complex fast.
A Certified Public Accountant (CPA) or qualified bookkeeper can give you a real advantage. In fact, most small business owners already lean on one. The 2024 NFIB Tax Survey found that 90% of small business owners used a tax professional. Of those, 88% said it was because tax rules were too complex to handle themselves.
An expert reads your balance sheet alongside your other statements. That fuller picture can be the difference between just surviving and truly thriving.
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