The balance sheet is read in three words. What you own is the assets. What you owe are the liabilities. What's left is your equity. If you remember these three questions, no balance sheet will ever intimidate you again.
Many owners see the balance sheet as a page for taxes and the bank. In reality, it's a snapshot of your business at a specific date, usually December 31. The snapshot shows everything the business owns on that day and who it belongs to.
The first side is called assets. This includes the cash in the bank and the cash register, the goods on the shelf, the invoices that customers haven't paid yet, and the equipment you use every day. In short, everything the business owns.
The second part shows where these assets came from. Part of it comes from others: the suppliers you have to pay, bank loans, and obligations to the government. These are liabilities. The rest is yours. It's called equity and includes the money you've put in yourself and the profits you've retained in the business over the years.
Karen Berman and Joe Knight, in their book Financial Intelligence, say that numbers are a language. Whoever learns it speaks on equal footing with the bank, the economist, and any partner. The balance sheet is the first sentence of this language.
Take a small grocery store in Tirana on December 31.
Assets: Bank balance 300,000 LEK. Cash on hand 50,000 LEK. Goods in stock 900,000 LEK. Equipment and shelves 450,000 LEK. Total assets 1,700,000 LEK.
Liabilities. Unpaid suppliers 500,000 LEK. Outstanding bank loan 400,000 LEK. Total liabilities 900,000 LEK.
Capital: 1,700,000 LEK minus 900,000 LEK equals 800,000 LEK. This is the amount that would actually remain for the owner if the store were to close today, everything were cashed in, and every debt were paid off.
Note the equation. Asset 1,700,000 LEK always equals liabilities 900,000 LEK plus equity 800,000 LEK. If this equation doesn't hold, there's a mistake somewhere.
At the Resource Center you'll find a simple balance sheet template in Excel, with the three sections pre-built and the balance self-checking. Enter your figures and immediately see what your real capital is. You'll find it at Resource Center.
The full accounting equation is written as Assets = Liabilities + Equity, and every double-entry transaction preserves it according to the principle of double-entry bookkeeping.
The presentation structure follows the National Accounting Standards. Assets are classified as long-term and short-term based on the liquidity criterion and operating cycle, liabilities are classified in the same way according to their maturity, while equity is presented separately as share capital, reserves, and retained earnings. The detailed format of the statement is specified in the relevant National Accounting Standards for the presentation of financial statements.
According to Article 5 of Law No. 25/2018 on Accounting and Financial Statements, micro-entities report in accordance with IFRS for SMEs 15, which allows for a simplified presentation. For a large portion of small Albanian businesses, the actual working balance sheet is precisely this shortened format. The professional value here lies in reclassification. A simplified balance sheet reclassified by liquidity gives the owner the same picture that the bank uses when analyzing the loan file.
Because capital also includes the results of the years. If the business has incurred losses, they have eaten into part of what you've put in. The balance sheet shows this clearly, and that is its value.
An asset isn't just cash. It can be goods on the shelf and unpaid invoices. Capital can be healthy even when the cash register is empty. This topic is covered in full on the profit and money page.
If you want someone to read your actual balance and explain it to you in simple terms, write to us at Contact page. An hour of clarification saves you months of guesswork.
We take care of accounting and taxes, so you can save time, money, and focus on growing your business.
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