What is a balance sheet?

A balance sheet is a snapshot of your business’ financial position on a given day, usually calculated at the end of the quarter or year.  It is a summary of your company’s assets, liabilities/obligations, and owner’s financial involvement.

When Do I Need a balance sheet?

A business will generally need a balance sheet when applying for loans or grants, submitting taxes, or seeking investors.

A balance sheet is how a business can verify that all their financial records are in check. There are essentially 3 accounting categories used to keep track of your finances:

  1. Assets
  2. Liabilities
  3. Owners’s (aka Shareholder’s) Equity

The way your finances “balance” is as follows:
Assets = Liabilities + Owner’s Equity

1. What is an asset?

Accounting language
An asset is anything tangible or intangible that is capable of being owned or controlled to produce value and that is held to have positive economic value.

To a business
Assets include cash on hand (cash & money in the bank), accounts receivable, reimbursable expenses, inventory, and any equipment that is of value. In FreshBooks, your “outstanding” invoices would be considered accounts receivable . There are examples of “equipment” here.

2. What is a Liability?

Accounting language
A liability is an obligation or debt of your business from past transactions or events.

To a business
Liabilities are moneys owed by the business. An example of liability is a loan for your business, accounts payable, credit cards payable, or taxes you still need to pay.

3. What is Equity?

Accounting language
Equity is the owner’s claim on the assets of a business. It represents assets that remain after deducting liabilities.

To a business
Equity is what you put in or take out of the business.  Examples of equity would be opening investments, contributions, owner’s capital or retained earnings.  When you re-arrange the accounting equation, Equity = Assets – Liabilities.

What does a balance sheet look like?

Make FreshBooks Better