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A balance sheet shows a company's assets, liabilities and equity at a reporting date. Learn its structure, follow a worked statement across two month-ends, and check that the balances and movements reconcile.
A balance sheet shows a company's assets, liabilities and equity at a specific reporting date. Its central check is that assets equal liabilities plus equity. Comparing consecutive statements shows which balances changed, while supporting schedules explain what caused those changes.
Assets = Liabilities + Equity
Balance check = Assets − Liabilities − Equity = 0
Assets include recorded cash, customer receivables, inventory and equipment. Liabilities include supplier balances, accrued obligations and borrowings. Equity is the owners' residual interest after liabilities are deducted from recorded assets. The SEC's financial statement guide explains this equation and distinguishes a balance-sheet snapshot from the flows shown in income and cash-flow statements.
The reporting date matters as much as the account name. September 30 cash is the balance at that date, not all the cash received during September. Adding August and September cash balances does not produce a meaningful year-to-date cash figure. A year-to-date income statement covers a period; a September balance sheet remains a September snapshot.
The SBA's balance-sheet explanation describes corporate equity as including contributed capital and retained earnings, with other adjustments possible. Recorded equity is not a current market valuation of the business.
A classified statement separates current assets and liabilities from longer-term balances. Use the company's approved classifications and reporting policies when mapping accounts. A distributor's main blocks:
| Section | Typical exported accounts | Supporting evidence |
|---|---|---|
| Current assets | Cash, trade receivables, inventory, prepaids | Bank reconciliation, aging report, inventory and prepaid schedules |
| Noncurrent assets | Equipment cost and accumulated depreciation | Fixed-asset register |
| Current liabilities | Payables, accruals, current debt | Supplier aging, accrual detail, debt schedule |
| Noncurrent liabilities | Longer-term debt | Debt schedule and maturity classification |
| Equity | Contributed capital, retained earnings | Capital records and equity rollforward |
Start with an approved closing trial balance or statement export. Keep the entity, reporting date, account code, account name, currency, signed closing balance and statement group. Compare stable account codes rather than editable account names.
The balance sheet worksheet guide covers preparation in a spreadsheet. Here, the task is to understand and check an already prepared statement. For a group of entities, use the separate consolidated balance sheet approach before treating combined totals as group balances.
Consider an illustrative US industrial distributor, Cedar Ridge Supply. The balances below are in USD, shown as positive presentation amounts. The change column is September minus August. All amounts are whole dollars; no rounding is needed.
| Line | August 31, 2026 (USD) | September 30, 2026 (USD) | Change (USD) |
|---|---|---|---|
| Cash | 180,000 | 210,000 | 30,000 |
| Trade receivables, net | 260,000 | 290,000 | 30,000 |
| Inventory | 340,000 | 320,000 | -20,000 |
| Prepaids | 20,000 | 20,000 | 0 |
| Current assets | 800,000 | 840,000 | 40,000 |
| Equipment, net | 500,000 | 480,000 | -20,000 |
| Total assets | 1,300,000 | 1,320,000 | 20,000 |
| Accounts payable | 210,000 | 230,000 | 20,000 |
| Accrued liabilities | 90,000 | 100,000 | 10,000 |
| Current portion of debt | 100,000 | 100,000 | 0 |
| Current liabilities | 400,000 | 430,000 | 30,000 |
| Long-term debt | 350,000 | 300,000 | -50,000 |
| Total liabilities | 750,000 | 730,000 | -20,000 |
| Contributed capital | 300,000 | 300,000 | 0 |
| Retained earnings | 250,000 | 290,000 | 40,000 |
| Total equity | 550,000 | 590,000 | 40,000 |
| Liabilities plus equity | 1,300,000 | 1,320,000 | 20,000 |
Build each subtotal from its underlying accounts. September current assets are $210,000 + $290,000 + $320,000 + $20,000 = $840,000. Adding net equipment of $480,000 gives total assets of $1,320,000.
On the funding side, current liabilities are $230,000 + $100,000 + $100,000 = $430,000. Add long-term debt of $300,000 and equity of $590,000: the result is also $1,320,000. Exclude subtotal rows when summing the underlying export, or the same accounts will be counted twice.
First, test each reporting date independently:
| Check | Calculation (USD) | Result (USD) |
|---|---|---|
| August equation | 1,300,000 − 750,000 − 550,000 | 0 |
| September equation | 1,320,000 − 730,000 − 590,000 | 0 |
| Movement identity | 20,000 − (-20,000) − 40,000 | 0 |
The movement identity says the increase in assets equals the change in liabilities plus the change in equity. It is a useful control on the comparison, but it does not explain the business transactions.
Next, trace the lines to their schedules. For example, the retained-earnings support supplied by the controller is:
| Retained-earnings step | Amount (USD) |
|---|---|
| Opening retained earnings | 250,000 |
| September net income | 55,000 |
| Dividends | -15,000 |
| Closing retained earnings | 290,000 |
The rollforward is $250,000 + $55,000 − $15,000 = $290,000. It explains why retained earnings rose by $40,000 even though September profit was $55,000. Show other equity changes separately.
Receivables increased while inventory fell. Those movements alone do not explain collections or purchasing. Use the aging and stock schedules to investigate, then follow the separate flux analysis method for a detailed movement explanation. The working capital guide owns the liquidity calculation built from the current sections.
Upload your approved balance-sheet export and supporting schedules, or bring a Google Sheet; Covirage maps the columns, and its tools compute and check the balances and changes. The external AI model explains the results, with every figure traced to its rows. Create a free Covirage account and bring a sample of your own data.
See Covirage for finance teams for the business context.
A profit and loss statement measures revenue, expenses and profit over a period. A balance sheet reports balances at one date. Profit can increase retained earnings, but it does not equal cash because sales, payments and expense recognition happen at different times.
Yes. An omitted transaction or an entry assigned to the wrong accounts can leave both sides equal. Check account schedules, cutoff dates and classifications as well as the accounting equation. A matching total proves arithmetic agreement, not completeness or correct accounting treatment.
Negative equity means recorded liabilities exceed recorded assets. Review accumulated losses, distributions and other equity movements to understand the cause. The balance alone does not determine whether upcoming payments can be met; that requires cash availability, maturity information and expected receipts.