What is a balance sheet?

By Book Keeping Pros
Sources checked 15 Oct 2026

Definition

A balance sheet is a snapshot of a business's financial position at a particular date. It lists what the business owns (its assets) and what it owes (its liabilities), and the difference between the two is its net assets, also called owner's equity.

Assets and liabilities are split into current and non-current items. Current assets include cash and items expected to be sold, collected or used up in the normal operating cycle or within 12 months. Current liabilities include obligations expected to be settled in that cycle or due within 12 months. Comparing the two is a first check on whether the business can meet its short-term debts.

Unlike a profit and loss statement, which covers a period, a balance sheet shows one moment, usually the last day of a month or of the financial year. Its figures are running balances. Asset, liability and equity accounts carry forward from one financial year into the next, so a balance sheet at 30 June reflects everything recorded since the business started, not just that year's transactions. Two balance sheets a year apart show how those positions moved over the year.

Each figure should be backed by a detailed list. The bank balance is supported by a bank reconciliation, accounts receivable by the list of unpaid customer invoices, accounts payable by the unpaid supplier bills, and a loan by the lender's statement. A line that cannot be explained that way is a sign that something needs correcting before the report is used, such as an old customer balance that was paid but not matched, or a supplier bill entered twice.

In Australia

business.gov.au publishes a balance sheet template to download. It groups current assets, such as cash, inventory and prepaid expenses, then fixed assets, current liabilities, such as credit cards, accounts payable and accrued wages, and long-term liabilities such as loans. Net assets are total assets minus total liabilities.

It also notes that a balance sheet can help you work out your working capital, the money needed to fund day-to-day operations, and how quickly you could pay your current debts.

The template's fixed assets are long-term items the business owns and uses, such as land and property, vehicles, tools and equipment, furniture, renovations and leasehold. For each year, figures can be actual or estimated, and any estimates need a clear label. The business.gov.au glossary adds that net assets also go by the names owner's equity, shareholder's equity or net worth.

Worked example

Illustrative example: a summary balance sheet at 30 June
Item	Amount (AUD)
Current assets	18,500.00
Fixed assets	42,000.00
Total assets	60,500.00
Current liabilities	9,300.00
Long-term liabilities	20,000.00
Total liabilities	29,300.00
Net assets	31,200.00

Illustrative example only: these rows show the method and are not sourced data.

Common mistakes

Including the owner's personal assets or debts in the business balance sheet.
Reading one balance sheet on its own instead of comparing it with an earlier date.
Carrying a loan at its original amount instead of the balance on the lender's latest statement.
Showing a long-term loan entirely as non-current without asking your accountant whether the part due within the next 12 months belongs with current liabilities.
Leaving equipment the business has sold or scrapped on the balance sheet as an asset.

Common questions

What is the difference between a balance sheet and a profit and loss statement?

A balance sheet shows position: what the business owns and owes at one date. A profit and loss statement shows performance: income and expenses over a period. The two connect through equity. A period's profit adds to equity and a loss reduces it, so balance sheets at the start and end of a year differ partly by that year's result. Reading them together shows not just whether the business made a profit, but where that profit now sits, such as in cash, stock or customer debts.

Does a balance sheet have to balance?

Yes. Total assets equal total liabilities plus equity, because every double-entry transaction keeps the two sides equal, even one that only swaps one asset for another. Borrowing raises cash and a loan together, paying a supplier lowers cash and accounts payable together, and a sale raises an asset and, through profit, equity. A hand-prepared balance sheet that does not balance points to a missing or one-sided entry, or an opening balance that was not set up.

How is a balance sheet different from a cash flow statement?

A balance sheet shows the cash balance at one date, alongside everything else the business owns and owes. A cash flow statement covers a period and explains how that cash balance got from its opening figure to its closing figure, item by item. Put two balance sheets side by side and you can see whether cash went up or down; the cash flow statement shows why.

Related terms

Related service

Management and cash-flow reports

Monthly reports that show where the business stands.

More about management and cash-flow reports

Sources

Set up a balance sheet
business.gov.au, Australian Government. Current at 15 October 2026, released 18 January 2024. Checked 15 October 2026.
© Commonwealth of Australia 2020, licensed under CC BY 3.0 AU. Licence: CC BY 3.0 AU.
Key financial terms
business.gov.au, Australian Government. Current at 15 October 2026, released 9 July 2024. Checked 15 October 2026.
© Commonwealth of Australia 2020, licensed under CC BY 3.0 AU. Licence: CC BY 3.0 AU.