Dictionary / Balance Sheet
What does Balance Sheet mean in accounting?
Quick definition
Equity & capitalA balance sheet is a statement of assets, liabilities, and equity on one date. Assets equal liabilities plus equity.
Read more below
A balance sheet is a statement of what the business owns (assets), what it owes (liabilities), and what is left for the owners (equity) on one date. The equation is assets = liabilities + equity. It always has to hold. If you want the walkthrough of how to use the report, that is how to read a balance sheet.
Examples
A month-end snapshot
On March 31, checking is $22,400 (reconciled), accounts receivable is $6,100, and a truck is on the books at $18,000 less depreciation. Accounts payable is $4,200, a vehicle loan is $11,500, and sales tax payable is $890. Equity is whatever makes the equation hold: contributions, draws, and retained profit.
When the sheet is not ready to read
You run Balance Sheet in QuickBooks Online or Xero for March 31. Cash does not match the bank by $1,200 because a payment is stuck in Undeposited Funds. Until you deposit and match it, do not analyze the snapshot. Fix the books first. Then use how to read a balance sheet.
Why it matters
This is the report that shows whether cash is real, whether invoices and bills are complete, and whether owner draws and loans are recorded. You cannot manage cash from the P&L alone. After each close, read the sheet with the how-to guide.
Further reading
Compare this term with reference material from other accounting and finance websites.
Keep learning
Start with the bookkeeping basics, then compare software when you are ready to pick a tool.
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What is a balance sheet in accounting?
A report of assets, liabilities, and equity on one date. It answers what the business owns and owes right now, not how much it earned this year. Earnings show up as a change in equity and, in detail, on the income statement.
How is a balance sheet different from a P&L?
The P&L (income statement) totals income and expenses over a period. The balance sheet lists balances on a day. Profit from the P&L flows into equity on the balance sheet.
Does a balance sheet show profit?
It can show current-year net income as an equity line, but that number comes from the P&L. Cash going up is not profit. You might have borrowed or collected old invoices.
Where do I find the balance sheet in QuickBooks or Xero?
QuickBooks Online: Reports, then Balance Sheet. Xero: Accounting, then Reports, then Balance Sheet. Set the date to the last day of the closed month.