What is balance

Balance is the accounts starting with 1 and 2 in the accounting that show what your company owns and what it owes at a given point in time.

The sums should be equal, meaning they balance out when a year is completed. You can also say that the balance shows an overview of what your company owns and how it is financed.

What is balance used for?

Balance is used to check the status of your company at a given point in time.

Assets are recorded as positive values and equity/liabilities as negative values.

Assets in the balance

Every time your company acquires an asset, whether it is property, vehicles, shares, inventory, or money, it should be recorded on an account starting with 1. These accounts give you an overview of what your company owns and the value of the assets.

Long-term assets, called fixed assets, should be recorded on low account numbers. Assets with shorter lifespans (current assets) are recorded on high account numbers.

Why equity is debt in the balance sheet

One thing that can be a bit confusing about the balance sheet is that the equity of the company is considered debt. This is because in practice, it is exactly that – it is debt that the company ultimately owes to the shareholders in the company.

For sole proprietorship’s, equity consists of the profit, or loss minus what the owner withdraws to a personal account.