About

A balance sheet is one of the three fundamental financial statements critical to financial modeling and accounting. It provides a snapshot of what a company owns (assets) and owes (liabilities), as well as the amount invested by shareholders (equity) at a specific point in time. Unlike an income statement which covers a period, a balance sheet represents a single moment, offering immediate insight into liquidity, leverage, and capital efficiency.

For small business owners and freelancers, maintaining an accurate balance sheet is essential for securing loans, attracting investors, and understanding the true net worth of the business. However, the complexity of categorizing accounts and ensuring the fundamental accounting equation holds true can be daunt. This tool simplifies the process by providing a structured, GAAP-compliant template with over 40 standard account categories, ensuring that your financial reporting is accurate, balanced, and professional.

Formulas

The fundamental logic behind every balance sheet is the Accounting Equation. This formula dictates that a company's total assets must always equal the sum of its liabilities and shareholders' equity.

Assets = Liabilities + Equity

To assess the financial stability of the business, analysts often calculate the Working Capital derived from balance sheet figures:

Working Capital = Current Assets − Current Liabilities

Reference Data

Account Name	Category	Normal Balance	Description
Cash & Equivalents	Current Assets	Debit	Currency, bank balances, and highly liquid investments (maturity < 3 months).
Accounts Receivable	Current Assets	Debit	Money owed to the business by customers for goods/services delivered.
Inventory	Current Assets	Debit	Raw materials, work-in-progress, and finished goods ready for sale.
Prepaid Expenses	Current Assets	Debit	Payments made in advance for goods/services (e.g., insurance, rent).
Property, Plant & Equipment (PP&E)	Non-Current Assets	Debit	Tangible long-term assets like buildings, machinery, and vehicles.
Intangible Assets	Non-Current Assets	Debit	Non-physical assets such as patents, trademarks, and goodwill.
Accounts Payable	Current Liabilities	Credit	Short-term obligations owed to suppliers or creditors.
Accrued Liabilities	Current Liabilities	Credit	Expenses incurred but not yet paid (e.g., wages, utilities).
Short-Term Debt	Current Liabilities	Credit	Loans and principal portions of long-term debt due within one year.
Long-Term Debt	Non-Current Liabilities	Credit	Loans and financial obligations due after more than one year.
Retained Earnings	Equity	Credit	Cumulative net income retained in the business rather than distributed as dividends.
Common Stock	Equity	Credit	Capital raised by issuing shares to investors.

Frequently Asked Questions

Current assets are resources expected to be converted into cash, sold, or consumed within one year or one operating cycle (e.g., Cash, Inventory). Non-current (or fixed) assets are long-term investments that the business expects to hold for more than a year (e.g., Equipment, Real Estate).

If Assets do not equal Liabilities plus Equity, there is an error. Common causes include: omitting a transaction, recording a transaction on only one side (e.g., double-entry error), mathematical mistakes, or incorrect categorization of an account (e.g., treating an expense as an asset).

Retained Earnings represent the portion of net income that is kept within the business rather than paid out as dividends to owners. This money is usually reinvested into the company for growth, debt payment, or reserve building.

Not necessarily. A balance sheet shows financial position (solvency and liquidity), not performance. A company can have significant assets but be generating a loss for the current year. To judge profitability, you must review the Income Statement in conjunction with the Balance Sheet.

Depreciation is recorded as a contra-asset account (Accumulated Depreciation) which reduces the book value of Property, Plant, and Equipment. On the balance sheet, you typically list the gross value of the asset and subtract accumulated depreciation to show the Net Book Value.