Balance Sheet Basics

Your balance sheet is a financial statement at a given point in time. It provides a snapshot summary of what your business owns or is owed - assets - and what it owes - liabilities - at a particular date.

The balance sheet therefore shows how your business is being funded and how you are using these funds.

There are three ways you may use your balance sheet:

  • for reporting purposes as part of a limited company's annual accounts
  • to help you and other interested parties such as investors, creditors or shareholders to assess the worth of your business at a given moment
  • as a tool to help you analyse and improve the management of your business

Other key benefits of producing a balance sheet include:

  • if you want to raise finance, most lenders or investors will want to see three years' accounts
  • if you want to bid for large contracts, including government contracts, the client will probably want to see audited accounts
  • producing formal accounts - including a balance sheet - will help you monitor the performance of your business
Show moreLimited companies and limited liability partnerships

Limited companies and limited liability partnerships must produce a balance sheet as part of their annual accounts for submission to Companies House, HM Revenue & Customs (HMRC) and shareholders.

As well as the balance sheet, annual accounts include the:

  • profit and loss account
  • auditor's reports - unless exemptions apply
  • directors' report
  • notes to the accounts - these should provide any information you think may be relevant, eg supplementary financial information or additional detail

Other parties who may wish to see the accounts - and therefore the balance sheet - are:

  • potential lenders or investors
  • potential purchasers of the business
  • government departments carrying out inspections
  • employees
  • trade unions

There are strict deadlines for submitting annual accounts and returns to Companies House and HMRC - you may have to pay a fine if you send them in late.

Show moreSelf-employed people, partners and partnerships

Self-employed people, partners and partnerships are not required to submit formal accounts and balance sheets on their tax return. However, the returns do require the relevant financial details to be entered in a set format, so you may find it beneficial to prepare the figures in a balance sheet format.