A snapshot of what a business owns, what it owes, and what it's worth at a specific point in time.
A balance sheet is a financial statement that shows the financial position of a business at a specific date (usually the last day of the financial year). It lists what the business owns (assets), what it owes (liabilities), and the net worth (equity / capital).
Everything the business owns or is owed. Split into fixed (long-term) and current (short-term) assets.
Everything the business owes to others. Split into current (short-term) and long-term liabilities.
The net worth of the business — what would be left for owners after all debts are paid. Also called shareholders' funds.
P&L shows performance over a period. The balance sheet shows financial position at one moment in time — like a photograph.
| Term | Definition | Examples |
|---|---|---|
| Fixed Assets | Long-term assets held for more than one year | Buildings, machinery, vehicles, equipment |
| Current Assets | Short-term assets that change regularly | Cash, stock (inventory), trade debtors |
| Current Liabilities | Debts due within one year | Overdraft, trade creditors, short-term loans |
| Long-term Liabilities | Debts due after more than one year | Mortgage, long-term bank loans |
| Net Assets | Total assets minus total liabilities | The business's net worth |
| Equity / Capital | Owners' stake in the business | Share capital + retained profit |
Here is a worked example balance sheet for "Summit Outdoors Ltd" at 31 December 2024:
Current Assets − Current Liabilities
£90,000 − £35,000 = £55,000
Fixed Assets + Working Capital − Long-term Liabilities
£330,000 + £55,000 − £100,000 = £285,000
Working capital is the money available to cover day-to-day running costs. It is calculated as:
A business needs positive working capital to pay its immediate debts — wages, suppliers, utility bills — without having to sell long-term assets.
If current liabilities exceed current assets, the business cannot meet its short-term obligations. This is called insolvency — the business may be forced to close even if it is profitable on paper.
Balance sheets are more useful when compared over time or against competitors. Key things to look for:
| Question | What It Reveals |
|---|---|
| Is working capital positive? | Short-term financial stability — can it pay its bills? |
| Is net asset value growing over time? | Business is accumulating value — growing in worth |
| Are long-term liabilities (debts) very large? | High financial risk — significant interest burden |
| How much retained profit? | Shows accumulated profitability — financial resilience |
| Are debtors high relative to revenue? | Customers taking a long time to pay — cash flow risk |
Click a term on the left, then its correct definition on the right.
Working Capital = Current Assets − Current Liabilities. Learn this cold and always show working.
Net Assets = Total Equity. If asked to check or complete a balance sheet, verify both sides are equal. If they're not, you've made an arithmetic error.
Always describe the balance sheet as a snapshot of financial position at a specific date — not a record of performance over time (that's the P&L).
Don't just recite numbers — say what they mean. "Working capital of £55,000 means the business can comfortably meet its short-term obligations, suggesting financial stability."