Reports & Decisions
Balance Sheet Basics: Assets, Liabilities, and Equity
Short answer
Balance sheet = Assets (what you own) − Liabilities (what you owe) = Equity (what's left for the owner). It's a snapshot at a single date, not a period. Lenders, buyers, and the IRS all care about it more than your P&L.
Most owners ignore the balance sheet — until they apply for a loan, sell the business, or get audited. Spending 5 minutes a month on it pays off the first time you need it.
The three sections
| Section | What's in it |
|---|---|
| Assets | Cash, A/R, Inventory, Equipment, Vehicles |
| Liabilities | Credit cards, loans, sales tax owed, A/P |
| Equity | Owner's investment, retained earnings, draws |
Three checks every month
- Cash > 1 month of fixed costs?
- A/R not growing faster than revenue?
- Credit card balance trending down, not up?
Frequently asked questions
Why doesn't my equity match my bank account?
Because equity includes retained earnings (past profit) minus draws, plus current-year net income. Cash is just one asset. They almost never match.
Bookkeeping, done for you.
Glo Invoice keeps your P&L, AR, and expenses in sync automatically — no spreadsheets, no surprises.
Sources & further reading
Primary sources we consulted when writing and reviewing this guide.