Balance sheet
What a business owns and owes on one date, and the equity left for its owner.
A balance sheet is a snapshot of a business on one date: its assets (what it owns), its liabilities (what it owes) and its equity, the difference between the two, so that assets always equal liabilities plus equity. Current items turn into cash or fall due within 12 months; the rest are non-current.
business.gov.au calls the difference net assets, also known as net worth or owner’s equity. A profit and loss statement covers a period; the balance sheet shows where the business stands at the end of it, and the year’s profit, less drawings or dividends, is what moves equity from one balance sheet to the next.
Worked example
A landscaper at 30 June has $56,750 of assets — $23,150 current and $33,600 of equipment after depreciation — and $29,750 of liabilities, $14,650 of them due within a year. Equity is $56,750 − $29,750 = $27,000, and working capital is $23,150 − $14,650 = $8,500.
Common mistake
Showing the whole of a loan as a long-term liability. The principal due in the next 12 months is a current liability, and leaving it out makes working capital look stronger than it is.
Grounded in business.gov.au — Set up a balance sheet guidance. Figures last checked . General information, not tax advice.
Related terms
Prepaid expense
A cost paid now for something you receive later, such as a year of insurance up front.
Loan amortisation
Paying a loan off in equal repayments that move from mostly interest to mostly principal.
Depreciation (decline in value)
Claiming the cost of a big asset gradually over its life.
ABN (Australian Business Number)
The 11-digit number that identifies your business.
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Questions about this term
Balance sheet: common questions
- What are the three parts of a balance sheet?
- Assets, liabilities and equity. Assets are what the business owns, liabilities are what it owes, and equity is the difference: what would be left for the owner if every asset were turned into cash at its book value and every debt were paid.
- What is working capital on a balance sheet?
- Current assets less current liabilities: the cash and near-cash the business has against the bills due within a year. A positive figure means the next twelve months of obligations are covered by what will turn into cash over the same period.
- Does a balance sheet show the profit for the year?
- Not as a line of its own. Profit belongs to the profit and loss statement for a period; on the balance sheet it shows up as the increase in equity, alongside the money the owner put in and took out. That is how a business can show a profit and still have little cash.
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