Balance sheet facts for kids

A balance sheet (also called a statement of financial position) is like a financial snapshot of a person or a business at a specific moment. It shows what you own (your Assets), what you owe to others (your liabilities), and what's left over for you (your equity). Think of it as a picture of your financial health on a certain day, like the end of a year.

It's one of the main financial statements, but unlike others that show activity over time, the balance sheet shows things at one exact point in time.

A standard balance sheet has two main parts. On one side are all the things a business owns (assets). On the other side are how those things were paid for. This includes money borrowed (liabilities) and money put in by the owners (owner's equity).

The main idea is that everything a business owns must equal everything it owes plus what the owners have invested. This is called the accounting equation: Assets = Liabilities + Owner's Equity

This equation helps you see how a business's assets were financed. Were they bought with borrowed money, or with the owner's own money? Businesses often have assets like buildings and equipment, and they also owe money to suppliers or for taxes. The balance sheet helps keep track of all this.

Types of Balance Sheets

A balance sheet summarizes a person's or an organization's assets, equity, and liabilities at a specific time. There are two main ways to present a balance sheet: the report form and the account form.

Individuals and small businesses usually have simpler balance sheets. Larger companies have more complex ones, which are often part of their yearly reports. Companies might also make balance sheets for different parts of their business. It's common to see a balance sheet compared with one from the previous year to show changes over time.

Personal Balance Sheet

A personal balance sheet lists your current assets, like cash in your checking accounts and savings accounts. It also includes long-term assets such as common stock and real estate.

Your liabilities include current debts like loans or mortgage payments due soon. Long-term liabilities are debts like your main mortgage. The value of things like stocks and real estate is listed at their current market value, not what you originally paid for them.

Your personal net worth is simply the difference between your total assets and your total liabilities. It shows how much you would have if you sold everything and paid off all your debts.

Small Business Balance Sheet

A small business balance sheet lists current assets like cash, accounts receivable (money owed to the business), and inventory (goods for sale). It also includes fixed assets such as land, buildings, and equipment. Some businesses have intangible assets like patents.

Liabilities for a small business include accounts payable (money the business owes), and long-term debt. The business's equity is the difference between its total assets and total liabilities.

What's on a Balance Sheet?

A balance sheet always shows assets, liabilities, and equity. These are the three main parts.

Assets

Assets are all the things a business owns that have value. This includes property, tools, vehicles, furniture, and machinery. Assets can be divided into two main types:

Current Assets

These are assets that can be turned into cash or used up within one year.

• Accounts receivable: Money that customers owe to the business.
• Cash and cash equivalents: Money the business has on hand or in the bank.
• Inventories: Goods that are ready to be sold.
• Prepaid expenses: Money paid for services that will be used in the future (within a year).

Non-Current Assets (Fixed Assets)

These are assets that a business plans to use for more than one year.

• Property, plant and equipment: Buildings, land, and machinery.
• Intangible assets: Things you can't touch but still have value, like patents or copyrights.
• Investments: Money put into other companies or properties for long-term gain.
• Biological assets: Living plants or animals that produce goods, like apple trees or sheep.

Liabilities

Liabilities are what a business owes to others. These are debts or obligations that need to be paid in the future.

• Accounts payable: Money the business owes to its suppliers.
• Provisions: Money set aside for future costs, like warranties or potential court fines.
• Financial liabilities: Debts like promissory notes or corporate bonds.
• Unearned revenue: Money received from customers for services not yet provided.

Equity / Capital

Equity, also called owner's equity or shareholders' equity, is the money that belongs to the owners of the business. It's what's left if you sell all the assets and pay off all the liabilities.

Equity includes:

• Issued capital and reserves: The money owners originally invested in the company.
• Retained Earnings: Profits that the company has kept and reinvested in the business, instead of paying them out to owners.

Think of equity as the "net worth" of the business. It's the difference between what the business owns and what it owes.

Sample Balance Sheet (Simple Example)

Here's a very basic example of what a balance sheet might look like. It shows the most common items, but not every single detail.

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

ASSETS Non-Current Assets (Fixed Assets) Property, Plant and Equipment (PPE) Goodwill (value of a company's good reputation) Intangible Assets (like patents or trademarks) Investments (money put into other companies for the long term)

Current Assets Inventories (goods for sale) Prepaid Expenses (money paid in advance for future services) Accounts Receivable (money owed to the business) Cash and Cash Equivalents (money on hand or in the bank)

TOTAL ASSETS (This total will match the total for Liabilities and Equity below)

LIABILITIES and EQUITY Current Liabilities (Debts due within one year) Accounts Payable (money owed to suppliers) Current Income Tax Payable (taxes due soon) Current portion of Loans Payable (part of a loan due within a year)

Non-Current Liabilities (Debts due after more than one year) Loans Payable (long-term loans) Deferred Tax Liabilities (taxes that will be paid later)

EQUITY Paid-in Capital (money invested by owners) Share Capital (value of shares issued) Retained Earnings (profits kept by the company)

TOTAL LIABILITIES and EQUITY (This total will match the total for Assets above)

See also

• Cash flow statement
• Income statement
• Minority interest
• National accounts
• Off-balance-sheet
• Statement of changes in equity