accounting balance sheet

Great! Let’s dive into the Accounting Balance Sheet, one of the key financial statements used to understand the financial position of a business at a specific point in time.

📊 What is a Balance Sheet?

A Balance Sheet shows a company's:

Assets – What it owns

Liabilities – What it owes

Equity – The owner’s stake in the business

It’s based on the accounting equation:

➕ Assets = Liabilities + Equity

This equation must always balance – that’s why it’s called a balance sheet.

📂 Balance Sheet Structure

A typical balance sheet has three main sections:

✅ 1. Assets

Assets are what the business owns or controls to generate value.

Current Assets (convertible to cash within a year):

Cash

Accounts Receivable

Inventory

Prepaid Expenses

Non-Current Assets (long-term):

Property, Plant, Equipment (PPE)

Vehicles

Intangible Assets (e.g., patents, trademarks)

❌ 2. Liabilities

Liabilities are what the business owes to others.

Current Liabilities (due within a year):

Accounts Payable

Salaries Payable

Taxes Payable

Short-Term Loans

Non-Current Liabilities (long-term):

Long-Term Loans

Bonds Payable

📈 3. Owner’s Equity (or Shareholder’s Equity)

This is the residual interest in the assets after deducting liabilities.

Owner's Capital (for sole proprietorships)

Retained Earnings (profits kept in the business)

Common Stock (for corporations)

📘 Example Balance Sheet

Let’s look at a simple example:

ABC Company – Balance Sheet as of Dec 31, 2024
Assets Amount ($)
Current Assets
Cash 10,000
Accounts Receivable 5,000
Inventory 7,000
Total Current Assets 22,000

Non-Current Assets
Equipment 15,000
Less: Accumulated Depreciation (3,000)
Total Non-Current Assets 12,000
Total Assets 34,000

| Liabilities | |
| Accounts Payable | 4,000 |
| Short-Term Loan | 3,000 |
| Long-Term Loan | 10,000 |
| Total Liabilities | 17,000 |

| Owner’s Equity | |
| Owner’s Capital | 12,000 |
| Retained Earnings | 5,000 |
| Total Equity | 17,000 |

| Total Liabilities + Equity | 34,000 |

✅ As you can see, Assets = Liabilities + Equity → $34,000 = $17,000 + $17,000

🧠 Tips to Remember

A balance sheet is at a point in time, unlike the income statement which covers a period.

It helps assess liquidity, solvency, and financial health.

Should always balance – if not, there's an error in recording.