What is a balance sheet?
The balance sheet (statement of financial position under IFRS) is a snapshot of what a company owns, what it owes and what shareholders have invested at a single point in time. It rests on the accounting identity: Assets = Liabilities + Equity. Under IAS 1 and US GAAP (ASC 210), it is presented either current/non-current or by order of liquidity.
The three blocks
- Assets: what the company owns.
- Current assets: cash, receivables, inventory, prepaids.
- Non-current assets: fixed assets, intangibles, long-term investments.
- Liabilities: what the company owes.
- Current liabilities: payables, accrued expenses, short-term debt, deferred revenue (<12 months).
- Non-current liabilities: long-term debt, lease liabilities, deferred tax.
- Equity: residual claim of shareholders. Paid-in capital, retained earnings, other comprehensive income, treasury shares.
Balance sheet vs. related statements
- Balance sheet vs. income statement: balance sheet is a point in time; income statement covers a period.
- Balance sheet vs. cash flow statement: cash flow statement explains the change in the cash line between two balance-sheet dates.
Diagnostic ratios
- Current ratio: liquidity headroom.
- Debt-to-equity: leverage and risk profile.
- Return on equity (ROE): profitability against shareholders’ invested capital.
- Working capital: current assets − current liabilities: operational runway in the short term.
Do: reconcile the balance sheet monthly; tie every account to a sub-ledger or schedule.
Don’t: rely on the income statement alone: a profitable company can still run out of cash if its balance sheet is choked by stale receivables or building inventory.
Working on this? Vircon Legal advises on Startup & Scaleup Advisory and Startup Law in Türkiye guide. Talk to us →
If this is on your desk
Templates and checklists are free in the Founder Academy; for a specific situation, book a 30-minute intro call.
Founder AcademyBook an intro call