Of the four basicfinancial statements, the balance sheet is the only statement that applies to a single point in time of a business's calendar year.[2]
A standard company balance sheet has two sides: assets on the left and financing on the right, which itself has two parts: liabilities and ownershipequity. The main categories of assets are usually listed first, and typically in order ofliquidity.[3] Assets are followed by the liabilities. The difference between the assets and the liabilities is known as equity or the net assets or thenet worth orcapital of the company, and according to theaccounting equation, net worth must equal assets minus liabilities. In turn, assets must equal liabilities plus the shareholder's equity.[4]
Another way to look at the balance sheet equation is that total assets equal liabilities plus owner's equity. Looking at the equation in this way shows how assets were financed: either by borrowing money (liability) or by using the owner's money (owner's or shareholders' equity). Balance sheets are usually presented with assets in one section and liabilities and net worth in the other section, with the two sections "balancing".
A business can measure its profits by subtracting its expenses from its revenues. However, many businesses are not paid immediately; they build upinventories of goods and acquire buildings and equipment. In other words, businesses haveassets, and so they cannot, even if they want to, immediately turn these into cash at the end of each period. Often, these businesses owe money to suppliers and to tax authorities, and the proprietors do not withdraw all their original capital and profits at the end of each period. In other words, businesses also haveliabilities.
A balance sheet summarizes an organization's or individual's assets,equity andliabilities at a specific point in time. Two forms of balance sheet exist. They are the report form and account form. Individuals and small businesses tend to have simple balance sheets.[5] Larger businesses tend to have more complex balance sheets, and these are presented in the organization'sannual report.[6] Large businesses also may prepare balance sheets for segments of their businesses.[7] A balance sheet is often presented alongside one for a different point in time (typically the previous year) for comparison.[8][9]
A small business balance sheet lists current assets such as cash,accounts receivable, andinventory, fixed assets such as land, buildings, and equipment,intangible assets such aspatents, and liabilities such asaccounts payable, accrued expenses, and long-term debt.Contingent liabilities such aswarranties are noted in the footnotes to the balance sheet. The small business's equity is the difference between total assets and total liabilities.[12]
InEngland and Wales, smallercharities which are not also companies are permitted to file a statement ofassets and liabilities instead of a balance sheet. This statement lists the charity's main assets and liabilities as at the end of its financial year.[13]
Balance sheet account names and usage depend on the organization's country and the type of organization. Government organizations do not generally follow standards established for individuals or businesses.[14][15][16]
If applicable to the business, summary values for the following items should be included in the balance sheet:[17]Assets are all the things the business owns. This will include property, tools, vehicles, furniture, machinery, and so on.
Biological assets, which are living plants or animals. Bearer biological assets are plants or animals which bear agricultural produce for harvest, such as apple trees grown to produce apples and sheep raised to produce wool.[18]
Formally, shareholders' equity is part of the company's liabilities: they are funds "owing" toshareholders (after payment of all other liabilities); usually, however, "liabilities" are used in the more restrictive sense of liabilities excluding shareholders' equity. The balance of assets and liabilities (including shareholders' equity) is not a coincidence. Records of the values of each account in the balance sheet are maintained using a system of accounting known asdouble-entry bookkeeping. In this sense, shareholders' equity by construction must equal assets minus liabilities, and thus the shareholders' equity is considered to be a residual.
Regarding the items in the equity section, the following disclosures are required:
Numbers ofshares authorized, issued and fully-paid, and issued but not fully paid
Balance sheet substantiation is theaccounting process conducted bybusinesses on a regular basis to confirm that the balances held in the primary accountingsystem of record (e.g.SAP,Oracle, other ERP system's General Ledger) are reconciled (in balance with) with the balance and transaction records held in the same or supporting sub-systems.
Balance sheet substantiation includes multiple processes includingreconciliation (at a transactional or at a balance level) of the account, a process of review of the reconciliation and any pertinent supporting documentation and a formalcertification (sign-off) of the account in a predetermined form driven by corporate policy.
Balance sheet substantiation is an important process that is typically carried out on a monthly, quarterly and year-end basis. The results help to drive the regulatory balance sheet reporting obligations of the organization.
Historically, balance sheet substantiation has been a wholly manual process, driven byspreadsheets,email and manual monitoring and reporting. In recent yearssoftware solutions have been developed to bring a level ofprocess automation,standardization and enhanced control to the balance sheet substantiation or account certification process. These solutions are suitable for organizations with a high volume of accounts and/or personnel involved in the Balance Sheet Substantiation process and can be used to drive efficiencies, improvetransparency and help to reduce risk.
The following balance sheet is a very brief example prepared in accordance withIFRS. It does not show all possible kinds of assets, liabilities and equity, but it shows the most usual ones. Because it showsgoodwill, it could be aconsolidated balance sheet. Monetary values are not shown, summary (subtotal) rows are missing as well.
Under IFRS items are always shown based on liquidity from the least liquid assets at the top, usually land and buildings to the most liquid, i.e. cash. Then liabilities and equity continue from the most immediate liability to be paid (usual account payable) to the least i.e. long-term debt such as mortgages and owner's equity at the very bottom.[20]
Consolidated Statement of Finance Position of XYZ, Ltd. As of 31 December 2025
^Williams, Jan R.; Susan F. Haka; Mark S. Bettner; Joseph V. Carcello (2008).Financial & Managerial Accounting. McGraw-Hill Irwin. p. 40.ISBN978-0-07-299650-0.
^Epstein, Barry J.; Eva K. Jermakowicz (2007).Interpretation and Application of International Financial Reporting Standards.John Wiley & Sons. p. 931.ISBN978-0-471-79823-1.
