Balance sheet facts for kids

A balance sheet is like a financial snapshot of a person or a business at a specific moment in time. It shows everything they own (their Assets), everything they owe (their liabilities), and what's left over, which is their ownership equity or net worth. Think of it as a picture of their financial health on a particular day, like the end of a financial year.

It's one of the main ways businesses show how they are doing financially. Unlike other financial reports that cover a period of time (like a month or a year), the balance sheet is only for one exact date.

A typical balance sheet has two main parts. On one side are the Assets, which are listed usually from what can be turned into cash most easily to what is harder to sell. On the other side are the liabilities and the owner's equity. The cool thing is, these two sides always "balance" out! This is because of the main rule: what you own (assets) must equal what you owe (liabilities) plus what you or the owners have put in (equity). This shows how a business paid for its assets – either by borrowing money or using money from its owners.

Businesses don't always get paid right away for what they sell, and they often own buildings, equipment, or goods to sell. They also might owe money to suppliers or for taxes. The balance sheet helps them keep track of all these things.

Types of Balance Sheets

A balance sheet helps summarize what an organization or person owns, what they owe, and their net worth at a specific time. There are different ways to show a balance sheet. For example, individuals and small businesses usually have simpler balance sheets. Larger companies have more detailed ones, often found in their yearly reports. Sometimes, a balance sheet is shown next to one from the previous year so people can compare them and see how things have changed.

Personal Balance Sheets

A personal balance sheet lists your current assets, like money in your checking accounts and savings accounts. It also includes long-term assets, such as common stock (shares in companies) and real estate (like a house). On the other side, it lists what you owe, like short-term loans or parts of your mortgage that are due soon. It also includes long-term debts, like the rest of your mortgage. Things like stocks and real estate are listed at their current market value, not what you originally paid for them. Your personal net worth is simply the difference between everything you own and everything you owe.

Small Business Balance Sheets

A small business balance sheet lists things like cash, money owed to the business (accounts receivable), and goods ready to be sold (inventory). It also includes bigger items like land, buildings, and equipment (called fixed assets). Sometimes, it lists intangible assets, which are things you can't touch but are valuable, like patents. On the liabilities side, it shows money the business owes to others (accounts payable) and long-term debts. The business's equity is what's left when you subtract all its liabilities from its total assets.

Charity Balance Sheets

In places like England and Wales, smaller charities that are not also companies can file a simpler statement of assets and liabilities instead of a full balance sheet. This just lists their main assets and liabilities at the end of their financial year.

How Public Businesses Structure Their Balance Sheets

Big public companies follow special rules for their balance sheets. These rules are set by groups like the International Accounting Standards Board or specific organizations in different countries. In the USA, companies follow rules called U.S. Generally Accepted Accounting Principles (GAAP).

The names and uses of accounts on a balance sheet can change depending on the country and the type of organization. For example, government organizations usually follow different rules than individuals or businesses.

Here are the main things you'll find on a business balance sheet:

Assets: What a Business Owns

Assets are all the valuable things a business owns. This includes property, tools, vehicles, furniture, and machinery.

Current Assets

These are things a business expects to turn into cash or use up within one year.

• Accounts receivable: Money that customers owe the business.
• Cash and cash equivalents: Actual cash, money in the bank, or things that can quickly become cash.
• Inventories: Goods that are ready to be sold.
• Prepaid expenses: Money paid for services that will be used in the near future.
• Revenue Earned In Arrears (Accrued Revenue): Money earned for services already done, but not yet received.

Non-Current Assets (Fixed Assets)

These are things a business plans to keep and use for more than one year.

• Property, plant and equipment: Buildings, land, machinery, and other long-lasting items.
• Investment property: Real estate held to earn rent or for investment.
• Intangible assets: Things you can't touch but are valuable, like patents or brand names.
• Financial assets: Investments that are not cash or accounts receivable.
• Biological assets: Living plants or animals that produce agricultural goods, like apple trees or sheep.

Liabilities: What a Business Owes

Liabilities are the debts and obligations a business has to pay to others.

• Accounts payable: Money the business owes to its suppliers.
• Provisions: Money set aside for future costs, like warranties or potential legal payments.
• Financial liabilities: Debts like promissory notes (promises to pay) or corporate bonds (loans from investors).
• Current tax: Taxes owed now.
• Unearned revenue: Money received from customers for services not yet provided.

Net Current Assets

This is a simple calculation: it's your current assets minus your current liabilities. It shows if a business has enough short-term assets to cover its short-term debts.

Equity / Capital: What Belongs to the Owners

The net assets (assets minus liabilities) on the balance sheet are equal to the owners' shareholders' equity. This is the money that belongs to the owners of the company. It includes:

• Issued capital and reserves: Money from shares sold to owners and profits kept by the company.
• Non-controlling interest: The part of a company owned by others, not the main parent company.

Even though shareholders' equity is money "owed" to the owners, it's usually listed separately from other liabilities. The fact that assets and liabilities (including equity) always balance is thanks to a system called double-entry bookkeeping, where every financial action is recorded in at least two places. This means that shareholders' equity is always what's left after you subtract liabilities from assets.

The equity section also needs to show details like:

• How many shares are allowed, issued, and paid for.
• The value of each share.
• Changes in the number of shares over time.
• Any special rights or rules about the shares.
• Treasury shares: Shares that the company bought back from the market.
• Shares set aside for future use, like for employee options.
• What each reserve fund within the owners' equity is for.

Sample Balance Sheet

Here's a very basic example of how a balance sheet might look for a company called XYZ, Ltd. It doesn't show all possible items, but it includes the most common ones.

Consolidated Statement of Finance Position of XYZ, Ltd. As of 31 December 2025

ASSETS Non-Current Assets (Fixed Assets) Property, Plant and Equipment (PPE) Less : Accumulated Depreciation Goodwill Intangible Assets (Patent, Copyright, Trademark, etc.) Less : Accumulated Amortization Investments in Financial assets due after one year Investments in Associates and Joint Ventures Other Non-Current Assets, e.g. Deferred Tax Assets, Lease Receivable and Receivables due after one year

Current Assets Inventories Prepaid Expenses Investments in Financial assets due within one year Non-Current and Current Assets Held for sale Accounts Receivable (Debtors) due within one year Less : Allowances for Doubtful debts Cash and Cash Equivalents

TOTAL ASSETS (this will match/balance the total for Liabilities and Equity below)

LIABILITIES and EQUITY Current Liabilities (Creditors: amounts falling due within one year) Accounts Payable Current Income Tax Payable Current portion of Loans Payable Short-term Provisions Other Current Liabilities, e.g. Deferred income, Security deposits

Non-Current Liabilities (Creditors: amounts falling due after more than one year) Loans Payable Issued Debt Securities, e.g. Notes/Bonds Payable Deferred Tax Liabilities Provisions, e.g. Pension Obligations Other Non-Current Liabilities, e.g. Lease Obligations

EQUITY Paid-in Capital Share Capital (Ordinary Shares, Preference Shares) Share Premium Less: Treasury Shares Retained Earnings Revaluation Reserve Other Accumulated Reserves Accumulated Other Comprehensive Income

Non-Controlling Interest

TOTAL LIABILITIES and EQUITY (this will match/balance the total for Assets above)

See also

In Spanish: Balance general para niños