Balance Sheet Definition & Example

Including Examples of Assets, Liabilities and Equity

Balance Sheet
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A Balance Sheet is a statement of the financial position of a business which states the assets, liabilities, and owners' equity at a particular point in time. In other words, the balance sheet illustrates your business's net worth.

The balance sheet is the most important of the three main financial statements used to illustrate the financial health of a business (the others being the Income Statement and the Cash Flow Statement).

An up-to-date and accurate balance sheet is essential for a business owner that is looking for additional debt or equity financing or wishes to sell the business and needs to determine how much it is worth.

All accounts in your General Ledger are categorized as an asset, a liability or equity. The relationship between them is expressed in this equation:

Assets = Liabilities + Equity

The items listed on balance sheets vary from business to business depending on the industry, but in general the balance sheet is divided into the following three sections:


As in the below example of a balance sheet, assets are typically organized into liquid assets, those that are cash or can be easily converted into cash, and non-liquid assets that cannot quickly be converted to cash, such as land, buildings, equipment, etc.

The list of assets may also include intangible assets, which are much more difficult to value.

Generally accepted accounting principles (GAAP) guidelines only allow intangible assets to be listed on a balance sheet if they are acquired assets that have a lifespan and a clearly identifiable fair market value (the probable price at which a willing buyer would buy the asset from a willing seller) that can be amortized - these are reported on the balance sheet at the original cost minus depreciation.

This includes items such as:


Liabilities are funds owed by the business, and are broken down into current and long-term categories. Current liabilities are those due within one year and includes items such as:

  • accounts payable (supplier invoices)
  • wages
  • income tax deductions
  • pension plan contributions
  • medical plan payments
  • building and equipment rents
  • customer deposits (advance payments for goods or services to be delivered)
  • utilities
  • temporary loans, lines of credit, or overdrafts
  • interest
  • maturing debt
  • sales tax and/or goods and services tax charged on purchases


Equity is that which remains after subtracting the liabilities from the assets, also known as shareholders' equity. Retained earnings are earnings retained by the corporation (e.g. not paid to shareholders in the form of dividends).

Retained earnings are used to pay down debt or otherwise reinvested in the business to take advantage of growth opportunities. Typically while a business is in a growth phase retained earnings are used to fund expansion rather than paid out as dividends to shareholders.

Sample Balance Sheet

BALANCE SHEET As At __________ (Date)
Current Assets: Current Liabilities: 
  Cash in Bank$18,500.00  Accounts Payable$4,800.00
  Petty Cash$500.00  Wages Payable$14,300.00
  Net Cash$19,000.00  Office Rent-
  Inventory$25,400.00  Utilities$430.00
  Accounts Receivable$5,300.00  Federal Income Tax Payable$2,600.00
  Prepaid Insurance$5,500.00  Overdrafts-
Total Current Assets$55,200.00  Customer Deposits$900.00
    Pension Payable$720.00
Fixed Assets:   Union Dues Payable-
  Land$150,000.00  Medical Payable$1200.00
  Buildings$330,000.00  Sales Tax Payable 
  Less Depreciation$50,000.00Total Current Liabilities$24,950.00
Net Land & Buildings$430,000.00   
  Long-Term Liabilities: 
Equipment$68,000.00  Long-Term Loans$40,000.00
Less Depreciation$35,000.00  Mortgage$155,000.00
Net Equipment$33,000.00Total Long-Term Liabilities$195,000.00
  Owners Equity: 
    Common Stock$120,000.00
    Owner - Draws$50,000.00
    Retained Earnings$128,250.00
  Total Owners Equity:$298,250.00


Accounting Software Can Generate Balance Sheets Automatically

Balance sheets are easy to do if you use accounting software. Accounting software designed for small businesses can keep track of all your accounting information and generate balance sheets, cash flow statements, and other reports automatically as needed.

See also: 

Balance Sheet - Financial Plan - Writing a Business Plan

The Advantages of Using Small Business Accounting Software

Finding Small Business Financing

Also Known As: Statement of financial position.