What Is a Company Balance Sheet? Simple Guide
A simple UK business guide to what is included on a balance sheet, what goes on it, and why it matters.
Let’s keep this simple. A balance sheet can sound like a big accounting document, but once you know what you are looking at, it is much easier to understand.
Not over a year. Not over several months. Just the position on a specific date.
what is a company balance sheet
A company balance sheet shows what the business has, what it still needs to pay, and what value is left in the business after that. That is the main idea behind it.
Think of it like checking the financial position of the business on one day. It does not show whether the business made a profit during the year. That is the job of the profit and loss statement. The balance sheet shows the position at a certain date.
what is included on a balance sheet
The majority of balance sheets are build based on three primary systems: assets, liabilities and equity. When the three parts are clear, it becomes clear how to follow the rest of the report.
| Section | What it means | Examples |
|---|---|---|
| Assets | Things the business owns or controls | Cash, bank balance, equipment, stock, money owed by customers |
| Liabilities | Money the business owes to others | Loans, supplier bills, VAT, PAYE, corporation tax |
| Equity | The remaining value in the business | Share capital, retained profits, owner’s interest |
what goes on balance sheet
What goes on balance sheet depends on the type of business, but the same sort of items appear again and again. You will usually see cash, bank balances, debtors, stock, equipment, unpaid bills, loans, and taxes owed.
For example, a small limited company might have money in the bank, a few unpaid customer invoices, laptops, software subscriptions paid in advance, supplier bills, and corporation tax due. All of those figures help build the balance sheet.
simple balance sheet flow
A simple way to understand the balance sheet is to follow this flow:
what accounts are on the balance sheet
The accounts on the balance sheet usually fall into a few familiar categories. Some are short-term, and some stay in the business for longer.
- Bank and cash balances
- Trade debtors, which means money customers still owe
- Stock or inventory
- Equipment, vehicles, or computers
- Trade creditors, which means supplier bills still unpaid
- Bank loans or finance agreements
- VAT, PAYE, corporation tax, or other taxes owed
- Share capital and retained profit
Let’s say a small consultancy has £12,000 sitting in the bank, £4,000 still due from clients, and laptops worth £2,000. On paper, that gives assets of £18,000. If the same business owes £5,000 to suppliers and HMRC, the amount left after those debts is £13,000. That remaining figure is shown under equity.
what should be on a balance sheet
The simple answer is this: only real figures should be on a balance sheet. No guessing. No rough numbers. If the records are clean, the balance sheet will usually make sense.
The balance sheet must be prepared with the correct amount of the equity, the assets that it is actually holding and the liabilities that it still has to discharge. Any of those figures missing or misconstrued, the report can be so easily misleading. This is where good bookkeeping comes in.
A balance sheet provides you a better picture on the stability of the business. It can point out unpaid bills, accumulated debts or be able to show the availability of funds to settle the pending bills.
You do not need to understand every accounting term to make sense of it. Once you get used to assets, liabilities, and equity, the balance sheet becomes far less intimidating.
Need help with accounts?
If you’d rather not deal with all this yourself, getting help is usually easier. MHC & Co can help you understand your balance sheet, keep your accounts clear, and explain the numbers in plain English.
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