What a balance sheet is, for a sole trader or small company

What goes on a balance sheet?

Assets come first, in two groups. Current assets are cash, or things you expect to turn into cash within 12 months: the bank balance, money customers owe you, stock, and costs paid in advance, such as insurance for the months still to come. Fixed assets are kept and used for longer — equipment, vehicles, computers — and are shown at cost less the depreciation so far.

Liabilities split the same way. Current liabilities fall due within a year: supplier bills, GST collected and not yet paid to the tax office, tax withheld from wages, a credit card balance, and the part of any loan to be repaid in the next 12 months. Long-term liabilities are due after that, such as the rest of the loan.

Equity is what is left: total assets less total liabilities. business.gov.au calls the same figure net assets, also known as net worth or owner’s equity. For a sole trader it is the money you put in, plus the profit the business has made, less what you have drawn out; for a company it is the shareholders’ capital plus the profits kept in the company.

How is a balance sheet different from a profit and loss statement?

A profit and loss statement lists sales and expenses for a period — a month, a quarter or a year — and ends with the profit. A balance sheet is taken at one moment, usually the last day of that period. The two meet in equity: the year’s profit adds to it, and drawings or dividends take from it.

Plenty of money movements touch only the balance sheet. Repaying loan principal reduces both cash and the loan, but it is not an expense. Buying a $30,000 vehicle turns cash into a fixed asset, and only its depreciation reaches the profit and loss, a slice each year. GST collected is owed to the tax office, so it is never income. That is why a profitable business can still be short of cash, and why a lender asks to see both statements.

A worked example: a landscaper’s year end

An invented landscaping sole trader closes the year on 30 June 2027. Current assets: $14,600 in the bank, $6,800 owed by customers, and $1,750 of insurance paid in advance — seven months left of a $3,000 policy paid on 1 February. That is $23,150. Fixed assets: a ute and equipment that cost $48,000, less $14,400 of depreciation so far, so $33,600. Total assets: $56,750.

Current liabilities: $2,350 owed to suppliers, $3,100 of GST due with the June quarter’s BAS, $1,900 on the business credit card, and $7,300 of the equipment loan due in the next 12 months — $14,650 in all. The rest of the loan, $15,100, is a long-term liability. Total liabilities: $29,750.

Equity is $56,750 − $29,750 = $27,000, and it ties back to the year. The owner started with $18,000 of equity, the business made a profit of $61,000, and the owner drew $52,000 to live on: $18,000 + $61,000 − $52,000 = $27,000, the same figure from the other direction.

The loan split is the line most often missed. A loan repayment schedule gives it directly: the principal in the next 12 months of repayments is the current part, and the balance left after a year of repayments is the long-term part.

What does a lender or accountant look for?

A lender reads the balance sheet for what it says about repaying. Working capital — current assets less current liabilities, $8,500 in the example — shows whether the next year’s bills are covered by what will turn into cash. Existing debt set against equity shows how much of the business is already borrowed, and the assets show what could secure a loan. business.gov.au notes that lenders may ask for financial reports and forecasts, and check a business’s financial health before an unsecured loan.

An accountant reads it for whether each figure can be proved. The bank balance should match a reconciled statement, money owed by customers should match the list of unpaid invoices, the loan should match the lender’s statement, GST owing should match the BAS, and every fixed asset should be on the register with its depreciation. Drawings stay apart from expenses, because what you take out is not a cost of the business.

In the United Kingdom, a private limited company’s annual accounts include a balance sheet signed by a director, alongside the profit and loss account; a small company or micro-entity may be able to send simpler accounts.

How does 2Fin help?

In 2Fin, most lines on a balance sheet are already being kept. The bank balance comes from your feed or statement upload. What customers owe is expected income and what you owe suppliers sits with your bills, together on Upcoming. Fixed assets live on the asset register with their depreciation.

On ELITE+ and AUTO+, the business reports put those lines together as a read-only balance sheet as at today: bank balances as the bank reports them, money owed to you, equipment at its written-down value, card and loan balances, bills owed and the GST or VAT set aside, with any account that has no reported balance listed as not known and left out of the totals. It is a statement of what 2Fin can see rather than audited accounts, and loan repayment and prepaid expense schedules sit beside it.

At year end, the accountant ledger, journal and profit-and-loss CSVs, and the Accountant Pack — a year-end workbook, a PDF summary and the receipts — give your accountant the figures to finish the balance sheet. A club or charity that only needs the year’s money in and out can start with the receipts and payments tool.